Trade Setup: Nifty may extend technical pullback; keep leveraged exposures under check

In a day of some serious consolidation, the domestic equity market closed on an absolutely flat note after a range-bound session.

Headline index Nifty opened on a weaker-than-expected note and soon slipped in the negative territory. The market extended its weakness as the index stayed in a falling trajectory until afternoon; in the process, it slipped below the 14,600 level for some time. However, the last two hours of the afternoon trade saw the index staging a remarkable recovery from its low point. Following over 150-point rebound from the low, Nifty at one point went back inside the positive zone. However, the closing settlement saw the index ending flat with a negligible loss of 7.60 points or 0.05 per cent.

As we approach Tuesday’s trade, the market needs to be looked at while keeping two important things in mind. First, given the over 450-point recovery from the low point in the previous session, Nifty’s ending flat is a show of strength as the index did not correct much. Second, we also need to keep that in mind that the index has not yet been able to take out its 50-DMA at 14,759 and close above that. Nifty had violated this on a closing basis and so this is acting as a resistance on its way up. NIFTY PCR across all expiries stood at 1.14, which is quite healthy and leaves room for some continuation of the pullback.


If there are no overnight negative cues to deal with, we may see the technical pullback getting extended once again in the initial trade. Tuesday's session will see the levels of 14,830 and 14,885 acting as immediate resistance points, while support will come in at 14,710 and 14,650 levels.

The Relative Strength Index (RSI) stood neutral at 47.08 and did not show any divergence against price. The daily MACD was bearish and remained below its Signal Line. A doji appeared on the candles. This shows indecision and the struggle of the market to move past a particular resistance point, which in this case is 50-DMA. The pattern analysis shows that the index is yet to move past the 50-DMA.

The defensive play was evident in the market today with IT, FMCG and some select pharma stocks relatively outperforming the broader market. This is likely to continue in the near term. We recommend avoiding aggressive shorts as the technical pullback may get extended. Fresh positions should be taken in modest quantities while keeping the leveraged exposures under check. There are high possibilities of diverging performance of few PSU and some private banks with the later showing relative weakness against the broader market. A cautiously positive view is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)