Trade setup: Nifty50 may stage a pullback; stay light on positions

NSE Nifty’s attempt to form a temporary base went down the drain after it witnessed yet another weak session on Thursday. In highly volatile trading, the index recovered a bit from a 230 points cut to end 138 points or 1.34 per cent lower at 10,980.

The market is acutely oversold, and a sharp pullback cannot be ruled out. However, the headline index has ended well below 200-DMA and traded below all its moving averages. Despite a high possibility of a pullback, the Thursday’s session has changed the texture of the market.

As per technical terms, the possibility of a pullback has increased with Thursday's low, and it may occur any time.


Friday’s session is likely to see 11,050 and 11,120 levels act as resistance. Supports may come in lower at 10,880 and 10,750.

The relative strength index (RSI) stood at the 25.18 level and marked a fresh 14-period low, which is bearish. The index stayed in oversold territory.

The daily MACD continued to remain bearish while trading below its signal line.

As per pattern analysis, the Nifty has completed formation of a classical Rounding Top formation. This is a bearish formation and often signals the initiation of a secondary trend, which remains primarily broadly bearish.

Given the oversold structure of the market, we do not rule out the possibility of a pullback. A broad range consolidation may occur over the coming session.

Looking at the current technical structure, we expect the pullback, if any, to remain sharp and also limited to an extent.

We recommend traders to continue to avoid large exposures and approach the market on a very cautious note.

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