Trade Setup: Nifty may stage a technical pullback any time; avoid shorts

The domestic equity market continued to stay on tenterhooks on Friday as geopolitical tensions refused to fade. Headline index Nifty opened lower and ended the day on a negative note despite some pullback during the day.

The index opened on a negative note, it slipped further as the day progressed to form the low point of the day in late morning session. After testing the low of 16,133, the market saw a significant recovery from lower levels. The index rebounded over 300-odd points from the low of the day. However, this recovery got sold into and failed to sustain itself during the day. The index ended the day with a net loss of 252.70 points or 1.53 per cent.

Over the past sessions, and more so on Friday, the market saw significant addition of fresh shorts across the board. Nifty current month futures have added over 1.71 lakh shares or 1.35 per cent in net Open Interest. Since this increase in OI has come along with decline, we can fairly conclude that fresh shorts have been added to the system. If we draw an adjusted trend line, the levels of 16,133 may act as an most immediate support levels for Nifty. There is an evident scramble by the index to find a temporary base for itself. Despite geopolitical tensions and the broader trend staying downward, some technical pullback now remains overdue in the market.

ET CONTRIBUTORS

Volatility remained at elevated levels. India VIX declined by a negligible 0.70 per cent to 27.9575. Monday’s session is likely to see the levels of 16,350 and 16,480 acting as probable resistance points while support will come in at 16,150 and 16,000 levels.

The daily RSI stood neutral at 34.83 and did not show any divergence against price. The daily MACD was bearish and stayed below the Signal Line. Apart from a black body that occurred on the charts, no other formations were noticed.

Pattern analysis shows that despite a double-bottom support of 16,400 getting violated, the adjusted trendline also hints at a mild possibility of Friday’s low of 16,133 acting as a potential support. It would be unfair to draw any conclusions merely looking at the trend lines as external factors may cause the technical levels getting violated. However, apart from this, some possibility of a technical pullback cannot be ruled out.

Over the coming days, the levels of 16,130 will be crucial to watch. It is not only the most immediate low point, but also the point where it tests the adjusted sloping trend line which may act as a support. The number of shorts that are seen being added every day also sets the stage for some technical rebound which stays imminent. If we do not have any fresh set of negatives to deal with, we can expect this technical pullback to happen any time. In any case, it is reiterated to stay away from shorting the market at current levels. While keeping fresh purchases limited, all profits should be protected vigilantly on either side of the move. A cautious view is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at [email protected])

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