Market Outlook for Monday: Trade setup: Nifty may see fresh weakness below 8,550 level

In a volatile session on Friday, the domestic equity market consolidated, as it ended flat with a minor gain. NSE Nifty made a stronger-than-expected start, however, it failed to capitalise on the robust opening and gradually gave up all gains. After coming off over 450 points from the day’s high, the index spent the remaining session oscillating in a wide 200-point range. It finally settled flat with a minor gain of 18.80 points or 0.22 per cent at 8,660.25.

After a pullback of nearly 20 per cent from recent lows, which was entirely fuelled by short covering, the bulls look out of fuel. Some corrective moves from current levels cannot be ruled out. Monday’s session can see a negative opening, following weakness in the US markets. The volatility index, India VIX, cooled off a bit by 1.60 per cent to 70.38 on Friday.

The upcoming session is all likely to see a flat to negative start, with 8,815 and 9,000 levels acting as resistance. Support may come in at 8,550 and 8,310. In the event of further correction, the trading range is expected to get wider than usual.

The Relative Strength Index (RSI) on the daily chart was at 36.02, and it remained neutral, showing no divergence against the price. The daily MACD stayed bearish and traded below its signal line. Apart from a black body, no other patterns were seen on the charts.

As per pattern analysis, Nifty has marked a temporary bottom near the 7,850-7,650 zone, and saw a technical pullback from that area. However, it did not confirm the formation of a base. In the event of any fall below 8,550, the market may once again slip into a broad trading range and would delay the confirmation of a bottom.

Given the current technical setup, we would again advise traders to refrain from any significant directional exposures on either side. Nifty is now expected to trade in the broad trading range, and volatility is also likely to increase. We recommend adopting a highly defensive and cautious approach.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)