Trade Setup: Holding above 50-DMA level crucial for Nifty's further upmove

Indian equities saw a corrective decline for the fourth day in a row as Nifty50 ended Friday’s session with a loss. After opening on a negative note, Nifty50 remained in the red for the entire day. Friday’s morning session saw markets trade in a range-bound manner as Dalal Street showed resilience to the weakness. However, the afternoon session saw a stronger corrective bout gripping the markets as Nifty50 saw a rapid decline which took it below the 17500-mark. A strong pullback followed in the last thirty minutes of the trade; the benchmark index ended the day with a net loss of 139.85 points (-0.79 per cent).

From the technical perspective, it is important to note that Nifty50 has bounced off from the 50-DMA which presently stays at 17505 after a minor intraday violation. Also, on a closing basis, it has closed just a notch below the 100-DMA which stands at 17630. It is extremely crucial for the markets to not only defend the 50-DMA but also crawl above the 100-DMA as soon as it can; it would be equally important for Nifty50 to also stay above these levels to avoid incremental weakness. The 50—DMA and 100-DMA zone, presently between 17630-17505 remains a crucial support zone for the markets.

Monday is likely to see a jittery start to the day. The levels of 17665 and 17730 are immediate resistance points; immediate supports are seen at 17505 and 17450 levels.

The Relative Strength Index (RSI) is at 46.64; it is neutral and does not show any divergence against the price. The daily MACD has shown a negative crossover; it is now bearish and below the signal line.

Nifty50 formed a ‘Doji’ candle on the daily charts; such candlestick formation following a steep decline hints at a potential base formation and some technical pullback. However, it will require confirmation on the next bar.

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The pattern analysis shows that Nifty50 formed a lower top near the 18300 levels; it has seen a sharp corrective decline. In the process, the index has tried to find a base and defend the 50- and 100-DMA levels. The 50-DMA is presently at 17505; this is presently the most important support for the markets on the closing basis.

The Nifty50 PCR across all expiries stands at 0.88; the markets are oversold on short-term continuous charts. There are high probabilities that the markets may try and find a base for themselves. Some jittery start to the day is expected but it is likely that the markets return to their resilient performance. It is recommended that one stays selective while approaching the markets and in making purchases. While avoiding shorts at current levels, a cautiously positive outlook 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)