Trade Setup: Defending 17100-level key for Nifty50; stick with defensive stocks

Friday came as a massive negative surprise for the equity markets. With US markets closed due to the Thanksgiving holiday on Thursday, no overnight cues were expected. However, renewed Covid fears gripped the equity markets overnight which saw the Asian markets open with deep cuts and Dalal Street was not an exception. Friday’s opening of the Indian markets was somewhat relatively resilient as Nifty50 tried to limit its losses in the first hour of the trade. However, the Indian markets succumbed to global weakness as well. The entire session was gripped under fierce selling pressure as Nifty50 slipped below the 17000-level for a moment. No major recovery was seen from the lower levels and the headline index ended the day with a deep cut of 509.80 points (-2.91 per cent).

On Monday, Dalal Street is likely to see a jittery start to the week. If we take into account the validity of the Head and Shoulder formation on the daily charts, then the price targets through classical measurement tools fall near the 16600-16700 zone. On the other side, the selling might be overdone for a while and Nifty may try and find a reason to show a technical pullback.

The volatility witnessed a massive surge; India VIX spiked by 24.85 per cent to 20.8025. Nifty50 has also closed a notch below 10-DMA which presently stands at 17100. It would be crucial to see if this level is defended by Monday’s close.

For Monday’s session, the levels of 17180 and 17225 will act as potential resistance levels for Nifty50. The potential supports come in at 16900 and 16780 levels.

The Relative Strength Index (RSI) on the daily chart is at 31.24; it shows a bullish divergence against the price. The daily MACD is bearish and stays below the signal line.

Nifty50 formed a large black-bodied candle on the daily chart, it shows the strong momentum on the downside that persisted during the day.

Nifty’s price has closed outside the lower Bollinger band. Although this may result in a continuation of the downtrend, looking at other factors that affect the markets, some pullback inside the band cannot be ruled out.

Importantly, for the next couple of days, we may see the markets violating technical rules as they are being governed more by fear and knee-jerk reactions to refreshed Covid concerns. We recommend avoiding aggressive shorts and keeping fresh buying limited to only traditionally defensive stocks like pharma, consumption and IT. Any further buying in any of the sectors should be refrained even if a technical pullback occurs as relatable directional cues would be available only after the markets stabilize. A highly cautious view 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])