Trade Setup: Nifty may see further pullback but index not out of woods yet

Indian equities halted their five-day corrective decline on Tuesday as benchmark indices staged a strong pullback while ending with gains. Nifty50 opened weakly and traded over 250-odd points down in the initial trade. However, after marking the low point of 16836, Nifty50 staged a sharp recovery to crawl back inside the positive territory. It slipped in the negative zone again, but as the day progressed, it went on to put some incremental gains. The markets saw the index rebounding over 470-points from the low; eventually ending the day with a net gain of 128.85 points (+0.75 per cent).

The markets will open on Thursday after a one-day gap as Dalal Street was closed on the account of Republic Day celebrations. On Thursday, markets will adjust to the global trade setup. The global trade setup will also stay influenced by the FOMC outcome/comments and Indian markets will be no exception as they too will react to these updates. Thursday’s session will also see the current monthly derivative expiry lined up; the session will also stay dominated by the rollover-centric activities. The weekly options data indicate maximum Call OI built up at 17500; unless a tactical shift occurs, this level will stay a strong resistance point for the markets.

Thursday is likely to see a jittery start to the day; the levels of 17300 and 17430 may act as immediate resistance points. The supports come in at 17180 and 17000 levels. The trading range is expected to stay a little wider than usual.

The Relative Strength Index (RSI) on the daily chart is 40.38; it is neutral and does not show any divergence against the price. The daily MACD is bullish and remains below the signal line.

The pattern analysis shows that Nifty50 has tried to take support on a falling trendline pattern support; this trendline begins from the high point of 18600 and joins the immediate lower top. Presently, the index trades below the 20-, 50-, and 100-DMA levels.
All in all, even if the technical pullback continues, it would be prudent to stay away from creating any aggressive positions until some stability in the markets is seen. There are strong possibilities that despite some technical pullback and some gains, the markets may again see some corrective moves from the higher levels. Though the markets may have attempted to find some stability, there are no clear signs of corrective moves taking any breather. It would be prudent to wait for such signs; until then, a highly selective 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])