Trade Setup: Nifty may stage technical pullback; keep exposures modest
Corrective action continued in the Indian equity market on Friday as headline index Nifty corrected for the third day in a row.
The index opened lower, but it recovered over 200 points from the low point formed in the morning to trade in the green by late morning trade. That was the high point that the market formed; the index started to drift again in the negative territory. In fact, by late afternoon, Nifty had pared all of its recovery and went on to form a fresh low point for the day. No significant recovery was seen; the headline index ended with a net loss of 185.60 points or 1.04 per cent.
Nifty has shown corrective retracements in eight out of nine trading sessions; it has shaved off over 1,000 points from its high point of 18,600. The market also went near to its first important and major support on a closing basis, that of the 50-DMA which stood at 17,565. In the event of any continued down move, this point is expected to act as a crucial support on a closing basis. The F&O data shows addition of fresh shorts as indicated by Nifty November futures; they have added over 3.31 lakh shares or 3.18% in Net Open Interest. India VIX declined by 2.72%.
Monday’s session is expected to have a stable start to the day. Nifty has a possibility of staging a technical pullback. The levels of 17,750 and 17,825 will act as resistance points while The support will come in at 17,600 and 17,560 levels.
The Relative Strength Index (RSI) stood at 42.92. It has made a fresh 14-period low but it remained neutral and did not show any divergence against price. The daily MACD stood bearish and traded below its Signal Line.
The pattern analysis shows that following the formation of a strong bearish engulfing pattern at the high point, Nifty created an intermediate top near 18,600. The index then showed a rapid corrective retracement and has seen levels very near to the 50-DMA which stood at 17,565. This level is expected to act as support during the present corrective move on a closing basis.
There are higher possibilities of the market in general staging a technical pullback. Nifty PCR across all expiries stood at 0.75, which is near to the oversold zone. Few sectors like oil and gas, PSE, select auto and banks, and pharma have shown resilience; these pockets are likely to show relative outperformance in this truncated week.
We recommend sticking with those stocks that have shown improving Relative Strength while keeping overall exposures at modest levels. A cautiously positive outlook 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 milan.vaishnav@equityresearch.asia)
The post Trade Setup: Nifty may stage technical pullback; keep exposures modest first appeared on WorthStocks - Share Market Tips.
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