Home Market Trade setup: Nifty may stay weak, test 20-DMA in the short term

Trade setup: Nifty may stay weak, test 20-DMA in the short term


Taking cues from global markets and weak domestic technical setup, the NSE benchmark Nifty remained under corrective pressure for the entire session. The index opened lower and managed to recover early losses. However, Nifty pared recovery again and went on to end the session lower by 73.75 points or 0.65 per cent.

As we approach Tuesdays session, we once again expect a tepid start to the day. Though no structural breakdown is expected, but since Nifty has finally slipped under broad overdue consolidation, we may see market trading in a broad range with the levels of 11,175-11,200 acting as immediate sacrosanct supports.

The levels of 11,410 and 11,465 will act as immediate resistance levels for the Nifty. Supports may come in at 11,280 and 11,200 zones.

The Relative Strength Index (RSI) on the daily chart is 62.6309 and it has marked its fresh 14-period low, which is bearish. A Bearish divergence was also observed as the RSI has marked a fresh 14-period low, while the Nifty did not. Though the daily MACD is still bullish and it trades above its signal line, it is moving towards negative crossover.

On the candles, a falling window occurred. This is essentially a gap down and often results into continuation of the downtrend in the next session. However, it requires confirmation on the following bar.

Pattern analysis shows that Nifty broke out from the 11,170-11,175 area and then after marking the high of 11,495, it has exhausted its upmove for the immediate short term. This may see Nifty slipping into broad rangebound consolidation by the time it gathers strength for a fresh upmove.

We are once again slated to see a tepid opening to the trade and see the market continuing to trade with a corrective bias. In event of any downsides, we may see the market testing its short term 20-DMA. However, if the Nifty remains under broad consolidation for the near term, it would be healthy for the market.

We expect highly stock-specific activities taking place. We recommend continuing to keep exposures at modest levels, while adopting a cautious view on the market.

STOCKS TO WATCH: Good technical setup was observed in stocks of FSL, Coal India, DHFL, Hexaware, Arvind, Bhushan Steel, HCL Technologies, Adani Ports, Future Retail, Biocon, Indian Hotels, Crompton Greaves and TCI.

(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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