Trade setup: Nifty mildly oversold, may see short covering at lower levels

The domestic stock market on Monday failed to capitalise on a positive opening and closed lower for a sixth consecutive session. NSE Nifty slipped below its short-term 20-DMA and ended 48.35 points or 0.43 per cent lower at 11,126.40.

The headline index has given up over 50 per cent of the gains logged after the corporate tax cut announcement, and in the process has broken supports at 100 and 200 DMAs.

After slipping below short-term 20-DMA, Nifty now stares at 50-DMA -- at 11,087 -- for some support. Given the weak technical structure, there are possibilities of the index testing this level. The stock market is likely to see a soft start after a day’s gap due to a trading holiday for Dussehra.


Wednesday’s session is likely to see 11,190 and 11,260 levels act as resistance points, while supports may come in at 11,088 and 10,960.

The Relative Strength Index (RSI) on the daily chart stood at 47.3446 and stayed neutral, showing no divergence against the price. The daily MACD has shown a negative crossover, and was bearish while trading below its signal line. A black candle was formed as no other significant formations were seen on the charts.

The pattern analysis of the daily chart showed that Nifty has given up over 50 per cent of its gains after the corporate tax cut. In the process, it has slipped below 100-DMA and 200-DMA along with the short-term 20-DMA. It now trades just above 50-DMA level.

The index is mildly oversold on the short-term charts. There are also some shorts that continue to exist in the system. This may help some short-covering at lower levels despite the broader technical setup remaining week.

We cannot rule out the possibility of Nifty seeing some technical pullbacks. At the same time, these rebounds will continue to face selling pressure at higher levels. While avoiding any aggressive exposures with any bias, a cautious approach is advised for the day.

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