Trade Setup: Nifty oversold, technical pullback likely

After a positive start to the day and after an initial blip, the index grew stronger as the day progressed. At one point in time, the Nifty moved past the crucial 16,000-levels while it marked 16,083.60 as a high point of the day. It was the last one and a half hour of the session that did all the undoing for the market. The index steadily gave up all

the gains and slipped in the negative. After coming off over 340 points from the high point, the index ended with a negligible loss of 25.85 points or 0.16 per cent.

From a technical perspective, Nifty has been showing great amount of weakness over the past several days. In nine sessions over the past two weeks, it has lost over 1,340 points; presently it rests at very crucial support levels. While the index trades well be all the three key moving averages, it is now in the oversold zone and rests at a pattern

support. It has defended the most recent low point of 15,735; it would be crucial to see if the index is able to defend this point. The oversold condition of the market may trigger pullbacks even if the Nifty slips below 15,735, but this will make the index weaker from a technical perspective.

ET CONTRIBUTORS

There are possibilities of a positive start to the day; sustaining the positive start, if any, will be equally important for the market. Monday’s session is likely to see the levels of 15,860 and 15,935 acting as potential resistance points while support will come in at 15,710 and 15,620 levels.
The Relative Strength Index (RSI) on the daily chart stood oversold at 26.87. It continues to show a mild bearish divergence against price. The MACD was bearish and traded below the signal line. A black candle appeared on the charts; apart from this, no other major formation was noticed.

All in all, Nifty is oversold and rests on pattern support. This is enough to cause a likely technical pullback.

However, over the immediate near term, regardless of any technical pullback that happens or not, it would be crucial for the market to keep their head above 15,735 levels. Any violation of this point may trigger technical weakness in

the near term. It is recommended that leveraged exposures must be kept at modest levels. All buying should be kept limited to low beta and defensive stocks. A cautious and selective approach is advised until a clear confirmation of a bottom being in place is seen on the charts.

(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])