Trade Setup: Nifty may attempt technical pullback from current levels

Very much on anticipated lines, the three-day short trading week saw the domestic equity market trading on a corrective note. The last trading day of the week, i.e., Wednesday, also saw the market turning cautious in the second half of the session and ending the day in the negative territory.

After a better-than-expected opening, headline index Nifty inched higher to mark the high point of the day in the first half of the trading session. However, after that the index started to gradually give up the gains. At one point in time in the afternoon trade, it slipped in the negative zone. The market grew weaker after that and ultimately ended the day with a net loss of 54.65 points or 0.31 per cent.

Since Friday was a trading holiday for global markets as well, the Indian market will open and adjust to one day of global trade that it missed on Thursday. Having said that, there are possibilities of the index opening on a mildly negative note. In the same breath, the derivatives data show that the market may attempt a technical pullback from current levels. Also, all the three key DMAs, i.e., 50-, 100-, and the 200-DMAs fall in a 150-point range from 17,158-17,296. This makes this 150-point zone a strong support area on a closing basis for the index.


Monday's session is likely to see the levels of 17,540 and 17,690 acting as probable resistance points, while support would come in at 17,400 and 17,330 levels. The Relative Strength Index (RSI) on the daily chart stood remained neutral at 52.23 and did not show any divergence against price. The daily MACD has shown a negative crossover; it was bearish and traded below the Signal Line.

The pattern analysis shows that Nifty failed to break above the 18,000 levels convincingly; it witnessed corrective retracement after trying to move past this point. This makes 18,100-18,200 a stiff resistance zone for the market. On the other hand, the 150-point zone of 17,150-17,300 is a strong support area for the market as it has all the three key moving averages in close vicinity of each other within this zone. This translates into a 700-point trading range for Nifty in the near term.

All in all, Nifty April futures have added over 3.21 lakh shares or 3.46% in net Open Interest. This increase in OI has come with a decline in the index. This means that fresh shorts have been created. If Nifty moves down, this may lend support to market at current or lower levels. The index may see a resilient start; even if it gets a bit weaker start on Monday, the market may see improvement from current or lower levels. It is recommended to avoid shorting the market at current levels. A highly stock-specific approach is advised; downsides may be used to buy good quality low beta stocks at lower levels.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)