Trade Setup: Defending 16,900 level crucial for Nifty50

Asia's Tech News Daily

Nifty50, Nifty, Nifty Trade Setup, trade Setup, India VIX, RSI

Indian equities grossly underperformed the global markets on Monday. Indian markets opened in contrast with their Asian peers that were trading on a flat to a mildly positive note. After opening marginally on a positive, Nifty50 marked the intraday high in the early seconds of the trade. Within no time, the index was in the negative territory; it stayed in the red throughout the day. After spending the morning session with limited losses, the selling pressure intensified and this took Nifty50 below the 16900 level. Following a very modest rebound, the headline index ended the day with a net loss of 284.45 points (-1.65 per cent).

Looking at the technicals, the lead indicators show a strong bullish divergence against the price; the futures data show a lot of new shorts also being added. The options data show the highest PUT OI at 16900; maximum Calls OI has been dragged lower to 17300, and this is followed by 17200. Importantly, Nifty50 has decisively violated the 100-DMA, which stands at 17181 on a closing basis. This makes this point a resistance area in the event of any technical pullback taking place. Volatility spiked; India VIX surged 8.79 per cent to 20.0775.

Tuesday is likely to see Nifty50 trying to find a base if there is no overnight weakness to inherit. The levels of 17000 and 17085 will act as immediate resistance points. The supports come in at 16850 and 16790.

The Relative Strength Index is at 35.20; it shows a strong bullish divergence against the price. While the price closed at its 14-day low, RSI did not; this has resulted in a bullish divergence of RSI against the price. The daily MACD is bearish and below the signal line.

Nifty50, Nifty, Nifty Trade Setup, trade Setup, India VIX, RSI
ETMarkets.com

A large black-bodied candle on the daily chart reflects the strongly bearish directional consensus among the market participants.

The market breadth remains terribly weak; only 1 stock in the Nifty50 index closed in the green while 49 declined. The broader market breadth also remained weak. For Tuesday and for the coming days, defending the 16900 level becomes important again as violating this point will bring in weakness. There was some relative outperformance seen in the pockets like oil and gas, pharma, PSE stocks, etc., and this will likely persist for some time.

We recommend avoiding any excessively leveraged positions even if a technical pullback occurs. Shorts should be strictly avoided as Nifty50 is showing mild signs of a potential technical pullback. While staying away from large positions and avoiding shorts, a highly selective and 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 milan.vaishnav@equityresearch.asia)

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