Nifty had a buoyant start to the day. It opened positive and got stronger as the day progressed. It marked its high point in the early hours of the trade. The index started to pare its gains, and by afternoon it slipped briefly in the red . It crawled back inside the positive territory, but the gains continued to remain limited. The benchmark index closed with a modest gain of 60.15 points (+0.38 per cent).
From a technical perspective, the support zone of 15,700-15,750 is getting important by each passing day. After the initial test of this support zone, Nifty has defended this level for two days in a row as of now. It is also important to note that this level is also an important pattern support in the form of a double bottom for the markets.
It would be very important for the markets to keep its head above this crucial support zone of 15,700-15,750 if it has to get any meaningful technical pullback. In other words, any violation of this zone will make the markets weaker.
Tuesday is again likely to see a stable start to the day. The levels of 15,930 and 16,065 are likely to act as potential resistance levels. The supports come in at 15,750 and 15,700 levels.
The Relative Strength Index (RSI) stands at 28.86; it does not show any divergence and stays neutral against the price. RSI also is in the oversold territory below 30. The daily MACD is bearish and stays below the signal line. A Doji emerged on the candles. An occurrence of a Doji near the support area makes a case of a potential reversal which will require confirmation on the charts.
Also, given that the body of the current candle is engulfed by the body of the previous candle, this also shows a formation of a Harami pattern.
All in all, the markets are trying hard to find a potential point of reversal as it stares at a long overdue technical pullback. The oversold nature of the markets raises the possibilities of a pullback taking place. However, this can get delayed if we have overnight negative cues to deal with.
It is important to note that shorting the markets must be avoided due to unfavorable risk-reward ratio. Instead, all consolidation moves, or retracements must be used to pick stocks on a highly selective basis.
It is reiterated that one must continue to approach the markets cautiously on a selective note while keeping leveraged exposures at modest levels. (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])