Trade Setup: Nifty50 finds its potential bottom near 16,600 levels

The domestic equity markets attempted fiercely to find a bottom for themselves as they ended Tuesday’s session in the green, despite giving up some portion of their gains. Nifty50 index saw a stable and strong start to the day; it only got stronger as the day progressed. The headline index had gained substantially by afternoon, and at one point even moved past the 17900 level as it recouped all its previous day’s losses. However, the second half of the session saw the index coming off its highs; it came off nearly 300-odd points from the high point of the day. The last hour of the session saw some recovery from that point again. Finally, the headline index ended the day with a net gain of 156.65 points (+0.94 per cent).

Nifty50 has shown strong efforts to form a potential base for themselves; the present technical setup shows strong possibilities of Monday’s low point of 16614 staying defended and marking a potential short-term base. The zone of 16650-16700 is expected to act as a strong support area; it would be crucial for Nifty50 to keep its head above this point. Meanwhile, the volatility dropped as India VIX came off by 7.53 per cent to 17.5375. The weekly options data continue to show 17000 as immediate short-term resistance as it holds the highest Call OI at that point.

Wednesday is likely to see a stable start to the day; the levels of 16830 and 16900 are likely to act as strong resistance points; the supports come in at 16700 and 16630 levels.

The Relative Strength Index (RSI) on the daily chart is at 36.95; it stays neutral on a 14-day period. However, when subjected to regular pattern analysis, the RSI continues to show a strong bullish divergence against the price. The daily MACD is bearish and trades below the signal line. On Monday, Nifty50 had formed a candle with a long lower shadow. That was not a classical hammer, however, the occurrence of such a candle with a long lower shadow marks a potential bottom. On Tuesday, this was followed up by a formation of a Doji. Subject to confirmation on the following bars, a potential bottom may be in a place subject to Nifty50 defending the 16400 level.

All in all, the market breadth has been weak over the past few days. However, as the markets recovered it has shown improvement in the breadth which is important. The most immediate resistance for the markets on the higher side will be the 20-DMA which presently stands at 17195. This makes the zone of 17200-17350 a stiff resistance zone if the technical pullback in the markets continues. We recommend staying away from creating aggressive positions on either side; while staying extremely selective, a continued cautious 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 [email protected])