Trade setup: Select pockets to put up strong show; time to use downsides to make cautious purchases

The equity market traded on expected lines on Thursday. It opened lower, got weaker and ended the day with a loss. Nifty opened on a negative note and remained in the negative territory for the entire session.

It remained in the declining trajectory as it kept marking gradual lows. While showing no intent to recover at any point in time during the session, the headline index ended the day with a net loss of 219.80 points (-1.24 per cent).

From a technical perspective, Nifty has slipped under a broad-ranged consolidation on anticipated lines. It had halted its decline near the 20-DMA which stands at 17,748. In the process of the corrective decline, it has slipped below the 100-DMA level of 17,647.


This makes the level of 100-DMA the most immediate resistance for the market in the near term. It also makes the zone between 100-DMA and the -DMA a strong resistance zone for Nifty going ahead. The index is still above the 50-DMA which currently stands at 17,438.

As we step into Friday, the levels of 17,600 and 17,690 will act as potential resistance points for Nifty. Supports come in at 17,500 and 17,435 levels.

The Relative Strength Index (RSI) on the daily chart is 49.51; it is neutral and does not show any divergence against the price.

The daily MACD is bearish and remains below the signal line. A strong black candle emerged on the chart. This appeared near the resistance point of 20-DMA; in the process, this has added credibility to this resistance point.

Pattern analysis shows that Nifty now again trades below 20-DMA and 100-DMA. This has made the zone between 100-DMA and 20-DMA a strong resistance zone; in the same breath, 50-DMA still continues to exist as the most important support for Nifty. The index will have to defend this support on a closing basis to avoid any major weakness from creeping in.

All in all, despite such a strong corrective wave and dominant weakness in the market, some pockets like autos, pharma, consumption, and select pharma names grossly outperformed the broader markets.

Such market behavior is likely to persist for some time; we will see such select pockets continuing to put up a strong show. It is recommended to avoid creating shorts and use downsides to make select purchases. A cautious outlook 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)