After pulling back over 650 points at a stretch, the market took a breather on Friday and halted its rally. Despite relatively outperforming its global and other Asian peers, Nifty ended the last trading day of the week with a deep cut.
The market opened Fridays trade in the negative and the weakness accentuated as the session progressed. The benchmark index ended the day losing 197 points (-1.81%).
From an extremely short-term horizon, Nifty is demonstrating two important technical points; first, it reacted sharply to the 100-DMA level, which is currently at 10,932 and happens to be a pattern resistance; and secondly, it ended the day just below 200-DMA at 10,766.
As we step into a truncated week with Tuesday being a trading holiday, we expect a tepid start. While some volatile moves can be expected, Nifty should broadly honour the important supports on the charts. On Monday, Nifty is likely to see 10,810 and 10,840 levels act as key resistance and 10,710 and 10,650 levels act as potential supports.
The Relative Strength Index (RSI) on the daily chart stood at 50.5806; it remains neutral and shows no divergence against price. The daily MACD continued to remain bullish as it traded above the signal line. A big black body has emerged on candles. It remains significant because it occurred near a minor double top and the 100-DMA. This price action has reinforced the credibility of the overhead resistance area for the market.
Pattern analysis showed Nifty has halted a prolonged pullback at the 100-DMA level, which also happens to be a pattern resistance in form of a minor double top. On the lower side, Nifty has ended slightly below its 200-DMA.
All in all, the broader picture suggests a close above the 200-DMA will be crucial for Nifty. Any dip below this level will not only make the 200-DMA a key resistance going ahead, but also take Nifty below the falling trend line resistance, which it had penetrated earlier to inch higher. We expect volatility to remain ingrained in the trade.
While maintaining liquidity, modest purchases in defensive stocks may be made at on any dips. Overall, a cautious approach is advised for the day.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])