Trade setup: No triggers to signal end of weakness; modest exposure advised

Monday’s session remained extremely brutal as domestic equities corrected for the fifth day in a row. Nifty violated the 17,000-levels briefly before ending with a deep cut.

The index saw a resilient opening as it opened just with a modest cut and soon recovered from the low point of the day. However, all through this, the index stayed negative. After this brief resilience, the market found itself gripped in a deep corrective mode.

It remained in a strong downtrend throughout the session as it kept marking gradual lows. At one point in time. Nifty finally ended the day with a net loss of 468.50 points (-2.66 per cent).


After Monday’s close, Nifty has given up over 1,200-points out of 1,800-points of technical pullback it saw after testing the lows of 16,400. In the process, the index now trades below the 20-, 50-, and 100-DMA levels.

The current move confirms the onset of secondary trend as the primary trend now remains evidently disrupted. However, some pullback should not come as a surprise as Nifty PCR across all expiries is below 0.70 and is now deeply oversold.

However, the broader structure remains weak; all technical pullbacks may remain mild and the markets may consolidate at lower levels within a range.

Volatility spiked as India VIX surged 20.85 per cent to 22.8250.

Tuesday is likely to see the levels of 17,250 and 17,325 acting as resistance points for Nifty. Supports come in at 17,050 and 16,980 levels.

The Relative Strength Index (RSI) on the daily chart is 36.57; it has reached the lowest level in the last 14 days; however, it remains neutral and does not show any divergence against the price. The daily MACD is bearish and trades below the signal line. A strong black candle emerged; it depicts the bearish directional consensus of the market participants.

Monday’s session saw large Call writing at 17,500 levels; the maximum Call Open Interest also stands at 17,500 levels. This drags the resistance levels for Nifty much lower to this point. Any technical pullback will find severe resistance at current levels.

There are no triggers that signal the end to any weakness. At the same time, there are chances of some technical pullback given the relentless selling that was witnessed over the coming days. It is recommended to avoid making aggressive purchases and at the same time avoid excessive shorts as well. It would be prudent to stay away until a clear directional bias is established. While keeping exposures at modest levels, a highly cautious approach is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)