The domestic equity market saw a gap-down start again following amid a weak global setup and gave up more than what it had gained in the previous session. We had mentioned in the previous note that despite a gap-up start on the charts, there might not be any bullish implication on the following day.
The market traded precisely on the expected lines, as stimulus details failed to beat the weak technical setup. Nifty remained on a declining trajectory throughout the session. Its showing no sign of recovery at any point, and ended the day with a net loss of 240 points, or 2.57 per cent.
The technical setup remains predominantly weak on the charts. Even the second round of stimulus that came in later on Thursday is unlikely to enthuse the markets beyond a point. Nifty has shifted its resistance points even lower, and the 9,350-9,400 zone is now expected to pose stiff resistance. Volatility has risen despite a fall in the Volatility Index, India VIX, which fell 1.68% per cent to 38.1825.
The index is likely to see a tepid start on Friday. The 9,190 and 9,265 levels are expected to act as key resistance. Supports will come in at 9,060 and 8,955 levels. The corrective move, if any, is expected to expand the trading range on the downside.
The Relative Strength Index (RSI) on the daily chart stood at 47.25; it has marked a fresh 14-period low, which is a bearish signal. The RSI remains neutral as it shows no divergence against price. The daily MACD is bullish as it trades above the signal line. The slope of the histogram appears to be narrowing sharply; this increases the possibility of a negative crossover in the coming days. The percentage price oscillator or PPO remains positive.
A falling window has emerged on the candle as a result of the gap-down start. This is likely to result in continued weakness in the next trading session. Pattern analysis highlighted the resumption of the downtrend after Nifty fell out of the Rising Wedge formation. After breaching the formation on the downside, Nifty spent some time within a defined range, but it now seems to be resuming its down move.
During gap-up openings and intermittent pullbacks, the 50-DMA has provided stiff resistance on a closing basis. Given the predominantly bearish technical setup, there are chances of the downside momentum persisting in the market. We advise market participants not to get carried away by intermittent pullbacks as they might turn out to be deceptive.
Any temptation to make bargain purchases at lower levels should be avoided. Overall, exposures should be kept on modest level while sticking to the defensive stocks.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)