Home Market Trade setup: Tech charts point towards bottoming out of Nifty

Trade setup: Tech charts point towards bottoming out of Nifty


Indian stock market again disappointed on Wednesday, as it once again tested previous supports in a rangebou nd session. The selloff again occurred in the last hour and half of the trade with NSE benchmark Nifty losing over 120 points during the period. The index finally ended with a loss of 150.05 points or 1.36 per cent.

The ever-sliding rupee and the crude oil prices trending above $85 a barrel took technical toll on the market.

Rather than going into the mechanical analysis of the market, this note will take little critical view of the slide in Nifty, especially over last few couple of sessions. It is also important to take note of the fact that certain key sectors such as infrastructure and metal have now started to bottoming out and reversing. Pharma and energy packs are showing great resilience to the general market weakness.

We continue to expect the levels of 10,910 and 10,975 to act as immediate resistance zone for Nifty. Supports still exist at 10,770 and 10,730 on a closing basis.

The RSI (Relative Strength Index) on the daily chart was 32.8102. It very clearly and visibly showed a bullish divergence against the price. Nifty formed a fresh 14-period low while the RSI did not. Daily MACD stayed bearish while trading above its signal line.

There are couple of points that we need to take a note of. We agree that depreciating rupee and the rising crude prices continued to remain a concern for the equity market.

With bond yields rising once again, a rate hike of 25 basis points on October 5 remains imminent with certain sections of the market also expecting a 50 bps hike.

However, while fully respecting the current levels of the markets, if we speak on the immediate short term, we feel that the current weakness is now overdone.

There is clear and visible bullish divergence on the RSI, which is a lead indicator as RSI is not marking fresh lows against the Nifty and it was seen taking supports in a pattern. The market remain in a very close vicinity of 200-DMA. Also, there is shrinkage in futures premium seen in Nifty October Futures, as they added over 7.79 lakh shares in Open Interest.

All this point towards high addition of shorts, which may result in a sharp pullback, which now remains imminent. All this is happening with the couple of key sectors either bottoming out and reversing or remaining resilient as mentioned earlier in this note.

We strongly recommend staying away from creating short positions. Liquidity should be preserved while now using each dip for making very select purchases despite maintaining a highly cautious view on the market.

STOCKS TO WATCH: Shorts were seen being added in stocks of State Bank of India, Idea, Federal Bank, Adani Power, ITC, Reliance, Axis Bank, Infosys, ICICI Bank, M&M, Ashok Leyland and Jindal Steel.

(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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