Trade setup: Technical pullback may continue; 10,538 level key

Indian equity market ended its 5-day losing streak on Tuesday and ended the session with modest gains. The NSE benchmark Nifty closed 20 points or 0.19 per cent higher at 10,536.70.

As expected, the Nifty continued to see resistance at the 100-DMA mark of 10,538 for the entire session. The index also did achieve some stability on expected lines.

Wednesday’s session is likely to remain on the similar lines. We expect a quiet to modestly positive start to the trade. At the same time the levels of 10,538, which is the 100-DMA of the Nifty, will continue to remain a critical level to watch for in the immediate short term.


The index will be important for the market to open and sustain above 10,538 to attempt any pullback. Wednesday will see the levels of 10,550 and 10,615 acting as immediate resistance area. Supports may come in at 10,510 and 10,460 zones.

The Relative Strength Index (RSI) on the daily chart is 43.6255, and it remains neutral showing no divergences against the price. The daily MACD stays bearish while trading below its signal line.

If we look at pattern analysis, the 50-DMA still trades below the 100-DMA mark. This means that the Nifty is under very short term sideways movement and has lost upward momentum over the past couple of weeks.

The zone of 10,460-10,538 is likely to remain an extremely important support over the coming days.

Overall, Nifty appears oversold on some of the oscillators. Further, Nifty has attempted to stabilise on the expected lines. F&O data also suggest some likely technical pullback happening. We also expect some continuation of the short covering in the broader market as well, while quality stocks will continue to see modest purchases being made.

We recommend a cautiously positive view on the market, while continuing to keep overall exposures into check.

STOCKS TO WATCH: Shorts covering was seen in stocks like JSW Steel, IDFC Bank, Ashok Leyland, NCC, TV18 Broadcast, Tata Motors, Syndicate Bank, Federal Bank, Dish TV, PTC, ICICI Prulife, NHPC and Tata Global.

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