Trade Setup: Avoid aggressive shorts; market may take a breather from corrective action

Asia's Tech News Daily

Trade Setup, milan vaishnav, relative strength, psu banks, macd, technical analysis, stock market

Market Outlook for Monday, October 25, 2021

The Indian equity markets continued to correct for the fourth day in a row as it ended yet another day on a negative note. The Nifty opened on a positive note. It inched higher and marked its high point of the day in the first hour of the trade. However, after trading in a limited range while protecting its gains in the morning, the index gradually pared all its gains by afternoon to slip in the negative territory. It went on to slip further and tested the lows near 18,000-levels once again. The markets saw a decent pullback as it defended the levels near 18,000; the Nifty saw a pullback and ended the day with a net loss of 63.20 points (-0.35%).

From the technical perspective, there are greater chances that the Nifty continues to consolidate in the 18,000-18,600 zone. As per the weekly options data, the strikes of 18,000 has the accumulation of highest CALL OI; unless there is more weakness in the markets to deal with, this level will continue to extend support as it has been doing over the past two sessions. In other words, there are no possibilities of any major downside risks so long as Nifty is able to keep its head above the 18,000 levels. The Nifty PCR across all expiries is well below 1 at 0.82; close to being oversold.

India VIX came off by 2.72% to 17.5450. Monday is likely to see a stable start to the day. The levels of 18190 and 18265 will act as resistance points; the supports will come in at 18020 and 17930 levels.

The Relative Strength Index (RSI) on the daily chart is 60.24; it is neutral and does not show any divergence against the price. The daily MACD has shown a negative crossover; it is bearish and trades below the signal line. A black body emerged on the candle; apart from this, no other formations were observed on the charts.

Trade Setup, milan vaishnav, relative strength, psu banks, macd, technical analysis, stock market

The pattern analysis of the chart shows that after a strong resumption of trend above 18,000, the Nifty formed a spinning top followed by a large bearish engulfing candle near 18600. This marked a disruption of the uptrend. This also sen the Nifty in a ranged consolidation mode; the levels being defined at 18000-18600 in the near term.

All in all, unless there is any major negative to deal with or any more selling pressure to handle, we can expect the markets to attempt to gain some stability and take some breather from the recent corrective action. We will also see secor-specific performance taking place. It is expected that sectors like auto, PSEs, PSU Banks, private banks and select financial services whole Relative Strength is improving, may continue to relatively outperform broader markets. While avoiding aggressive shorts, selective approach is advised for the day.

The author, Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. Views are his own).

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