Trade setup: Nifty to see jittery start; make-or-break point at 100-DMA

In an eventful session, the Indian equity market managed to defy the global weakness on Friday after opening on a very weak note in the previous session. Following a rout overnight in the US market, Indian equities opened with a gap down. The opening saw the market start near the pattern support level, but it managed to defend the opening lows throughout the session. Not only did the index defend the opening low, it also managed a massive 450-point recovery from the low point to end with a modest gain of 70.90 points, or 0.72 per cent.

It is important to note that Thursday’s session had seen addition of fresh shorts in the system. And Friday’s session saw a massive short covering from the lower levels after the gap-down start, which fuelled the big recovery. It is also noteworthy that Nifty futures have shown a net decline in Open Interest, and this makes the bout of short covering more evident.

On Monday, Nifty is again likely to see a bit jittery start. The 10,035 and 10,090 levels are likely to act as key resistance while supports will come in at 9,910 and 9,815 levels.


The Relative Strength Index (RSI) on the daily chart stood at 59.66. It remains neutral and does not show any divergence against price. The daily MACD stays bullish and trades above the signal line. However, the sharply declining slope of the histogram shows that the indicator might show a negative crossover in the coming days.

A big white body emerged on the candles. The occurrence of such a candle near the support area reinstates the importance of support of the rising trend line of the channel.

Pattern analysis showed Nifty remains in the upward rising channel after the rising hedge resolved as a continuation pattern. The index currently trades above its 50-DMA and below its 100-DMA on the daily chart.

We reiterate that the massive pullback seen in the Friday’s session should not be misunderstood for market strength. The recovery was on account of a massive short covering from lower levels. Unless Nifty moves past the 100-DMA, which now stands at 10,206, and closes above that level, it will remain vulnerable to sharp selloffs at higher levels. We strongly suggest using all up-moves to exit profitable positions and adopting a cautious and stock-specific approach on the market 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)