The index didn’t show any intention to recover as it kept marking incremental low points and breached the 15,800 levels. It went on to close with a loss of 359.10 points (-2.22%) towards the end.
16,000 was expected to act as support however, the markets saw themselves opening much lower than this point. The Nifty also violated the trend line support, as evident on the charts; at the same time, it has now turned the support area of 16,000-16,100 into a resistance zone following the violation.
The index dragged its resistance levels lower and in the process, it has now got oversold on the daily chart. The possibilities of a technical pullback remain imminent, but for that to happen, there has to be no overnight weak trade setup for the markets to handle.
Friday is likely to see 15,890 and 15,965 acting as resistance points. The supports come in at 15760 and 15680 levels.
The Relative Strength Index (RSI) on the daily chart is 27.18. It stays neutral and does not show any divergence against the price. However, it trades in the oversold zone after marking a new 14-period low. The daily MACD stays bearish and below the signal line.
A large black body emerged on the candle; this shows a strong directional consensus among the market participants on the downside. All in all, the technical structure continues to remain predominantly weak.
In the same breath, the markets are now oversold and shorting the markets may not offer a good risk-reward preposition as well. Apart from this, such as the artificial and structured behaviour of the markets is that the intraday range is not big enough for the traders to trade the index. After a gap up or down, the index has shown tendency to stay in a narrow and defined range.
The Indian Rupee made a fresh low against the greenback; this usually pares out good for the IT stocks. It is strongly reiterated that while avoiding shorting the markets, one can continue focusing on those stocks whose relative strength is getting better and are among the traditionally defensive group. A 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 firstname.lastname@example.org)