Trade setup: Shorts likely to lift Nifty on Tuesday; 20-DMA key

Indian equity market saw a volatile session on Monday as the Nifty continued to oscillate in a range, but continued with its corrective decline as well. The market made a negative start to the week, as Nifty ended 67.70 points or 0.63 per cent down.

The NSE benchmark slipped below its short term 20-DMA and the overall structure of the charts suggest that such tentative mood of the market is likely to persist for some time.

Significant amount of short positions were seen being added in the system. Given the amount of shorts, we might see a modestly positive opening to the trade on Tuesday.


However, the Nifty continues to remain vulnerable to selling pressure at higher levels until some fresh area formation helps prepare a base for Nifty for a fresh upmove. Tuesday will see the levels of 10,650 and 10,735 acting as immediate resistance levels. Supports may come in at 10,580 and 10,540 zones.

The relative strength index (RSI) on the daily chart is 50.4630. RSI stays neutral and shows no divergence against the price. The daily MACD stays bearish while trading below its signal line. A big black candle emerged. This remains significant as it occurred near the 20-DMA and this gives credibility to the resistance area in the present situation.

If we look at the pattern analysis, Nifty has slipped below the 20-DMA while lending credibility to the short-term resistance area. The Nifty remain in very close vicinity of the 100-DMA support area and is expected to continue to spend some more time in the present broad range.

Overall, though a modestly positive opening is not ruled out on Tuesday, the Nifty still continues to remain vulnerable to some selling pressure at higher levels.

However, given the amount of shorts that exist in the system, it is likely to keep the overall downsides limited. All this translates into a likely rangebound session with some amount of volatility remaining ingrained.

Cautious view is advised for the day.

STOCKS TO WATCH: Short positions were added in stocks of HDFC Bank, Powergrid, Bank Of Baroda, BHEL, Adani Power, Infibeam, ITC, DHFL, Nalco, Vedanta, Jain Irrigation, Dish TV and Ambuja Cements.

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