Market outlook: Nifty set to open with a deep cut, may look up later

Weakness continued to persist in the domestic market on Monday as the benchmark Nifty50 index continued to decline for the second day and end with losses.

By now, the market has retreated nearly 50 per cent of its over 650-point pullback that it had seen during the week before.

Mondays session saw the market open on a tepid note and move in a capped range throughout. Late afternoon trade saw Nifty lose ground rapidly. The index ended the day, losing 90 points or 0.84 per cent.

Global weakness has refused to go away. The rout continued in the US market and the Dow Jones has lost over 2,200 points in last six sessions. Such global weakness is bound to affect us, and we can again expect a tepid start to Wednesdays trade.

However, the Indian market remains resilient and should continue to relatively outperform its global peers.

Wednesday also happens to be the penultimate day of December F&O series. Rollovers are likely to dominate the session with the 10,700 and 10,765 levels acting as key resistance for Nifty while 10,610 and 10,560 levels should act as key supports.

The Relative Strength Index, or RSI, on the daily chart stood at 46.6611 and it remains neutral against the price as it is not showing any divergence. The daily MACD remains bearish, as it trades below its signal line. Apart from the black body that has occurred, Nifty does not show any significant formations on the candles.

Pattern analysis shows Nifty has retraced from a minor double top formation, which also coincided with the 100-DMA level, which currently stands at 10,927. Apart from this, Mondays session has saw Nifty drop below the 200-DMA level at 10,767. These two DMAs are set to offer stiff resistance to the market going forward.

Overall, we do not expect any strong move on either side. There is a strong likelihood that Nifty will see a weak opening but will eventually improve as the day progresses. In any case, we are unlikely to witness any runaway rise, at least until expiry of the current F&O series. We recommend remaining very light on overall exposures. Avoid aggressive bets on either direction. One can make selective purchases in modest quantities as long as NIFTY does not show any structural breakdown. All in all, 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]

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