Home Market Trade setup: Amount of shorts hints at possibility of a pullback

Trade setup: Amount of shorts hints at possibility of a pullback


Indian equity market had a disappointing session on Wednesday, as the Nifty slipped on heavy selling pressure to end the day with a net loss of 97.75 points or 0.91 per cent.

Thursdays opening levels and trajectory post it would be extremely crucial for the index. If the Nifty does not show any pullback, it will be more susceptible to a breakdown. In the process, in an event of any meaningful pullback, it will increase chances of testing its 100-DMA, which stand at 10,533.

The coming sessions remain highly crucial from many aspects. Thursday is also expiry of the current derivative series, and given the shorts in the system, we also stare at a possible pullback.

However, the broader pattern formation forces us to sit with fingers crossed. On the higher side, the levels of 10,720 and 10,760 will resist any pullback, while the supports will come in much lower at 10,640 and 10,590 zones.

The daily RSI, which stands at 46.1609, has marked its 14-period low, which is bearish. MACD stays bearish while it trades below its signal line. On the candles, a big white body occurred. It is significant. as it emerged near the pattern area resistance of the falling trend line and lends further credibility to the resistance.

Overall, we stare at a two-way move on the Nifty. On one hand, there are remote chances of a technical pullback happening, if the Nifty validates the 50-DMA support on the closing basis. Nifty has closed a notch below this.

Also, the high amounts of shorts that exist in the system provide a ray of hope for a technical pullback given the expiry day.

On the other hand, Nifty stares at a possible breakdown from the large symmetrical triangle formation, which would make it vulnerable to test 100-DMA.

We recommend highly cautious approach to the market and advise staying away from creating any major exposures.

STOCKS TO WATCH: Fresh shorts were seen in the stocks of Idea, SAIL, IDFC, IDFC Bank, ICICI Bank, ITC, DHFL, PFC, TV18 Broadcast, Ashok Leyland and NTPC.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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