Trade Setup: Nifty may stage a mild technical pullback; stay light on positions

The domestic equity market took a serious sentimental hit as it stepped into the new week with the highest number of Covid cases and the administration grappling with issues of supply constraints of oxygen and other medical infrastructure being pushed to the brink.

Despite a stable and positive global trade setup, headline index Nifty opened on a gap down note and got weaker as the day progressed. Following severe weakness, the index, at one point in time, slipped below the 13,200 level to mark the day’s low of 14,191. Although as compared to the quantum of weakness that the market saw, there was some recovery from the low point, but that stayed insignificant. Following some rebound, the headline index ended the day with a cut of 258.40 points or 1.77 per cent.

The session has been damaging from a technical point of view. Nifty slipped well below its 100-DMA at 14,332 on an intraday basis. Although these levels were held as a support on a closing basis, this 100-DMA needs to be very crucially watched. Any slip below that level will not only push the index down with some more weakness, but it will also lead to Nifty testing the lower edge of the falling channel within which it was placed.


Volatility shot up as India VIX rose 10.21 per cent to 22.4850. There is also the possibility of a mild technical pullback; the broader setup is likely to remain predominantly weak. The levels of 14,400 and 14,490 will act as resistance points, while support will come in at 14,310 and 14,160 levels.

The Relative Strength Index (RSI) on the daily chart stood neutral at 42.43 and did not show any divergence against price. The daily MACD was bearish and stayed below its Signal Line. A falling window occurred on the candles. This happens following a gap down and has bearish consequences most of the times.

The pattern analysis shows that though the index continued to stay within the falling channel, it has violated the 100-DMA level intraday, and has taken support on it on a closing basis. Any violation of this level will mean incremental weakness for the market.

Also, it would be important to note that Monday’s decline has been part of unwinding of long positions. This is evident as Nifty April futures have shed Net Open Interest. Given the steepness of the slide, some mild technical pullback cannot be ruled out. However, the technical structure continues to remain weak.

The texture of the market has been highly defensive in nature. This becomes evident as just 5 stocks out of 50 in Nifty ended in the green and all were defensive stocks. We recommend continuing to stay light on positions and avoid heavy leveraged exposures. A highly cautious 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)