For the entire session, the Nifty remained in a gradually declining trajectory despite a lower opening. It went on to test the crucial pattern support. No signs of any major recovery were seen as the headline index closed with a net loss of 430.90 points (- 2.65%).
Despite a strong gap on the downside, the Nifty has still not violated the important double bottom support. This important pattern support exits in the range of 15,700- 15,750. So long as this zone is not violated, we have better possibilities of the index trying to stabilize once again. The weekly expiry took place on a much weaker note; all strikes above 15,800 saw consistent and significant amounts of call writing taking place. The volatility also spiked — India VIX surged 10.15% to 24.5575.
Two things now remain extremely crucial that would affect the trend over the coming days. First, it would be very necessary that the markets do not inherit any overnight weakness. Second, it would be equally crucial that the zone of 15,700-15,750 stays defended on the charts. If these two things work out, then it makes a good case for the markets to attempt a strong technical pullback.
Friday is likely to see the levels of 15,925 and 16,000 acting as potential resistance levels. Supports are expected to come in at 15,700. If this level is violated, incremental weakness will creep into the markets.
The Relative Strength Index (RSI) on the daily chart is 33.76; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and stays below the signal line.
A falling window emerged on the candles. Such formation results out of a gap on the downside and usually results in the continuation of the downtrend. However, in the present case, since it has emerged near a strong support area, it may not be as damaging as it would have been otherwise.
It is strongly recommended that shorts may be avoided despite overnight weakness. Fresh shorts have been added to the system as evident from the Nifty futures data. The current month’s futures have added over 3.38 lakh shares or 4.04% in OI with the decline.
It is reiterated that while avoiding shorts, all downside moves must be used to make purchases in quality stocks. While keeping exposures at modest levels, a cautious approach 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])