NSE Nifty opened gap-down on Monday, and plunged 10 per cent, which triggered a 45-minute trading freeze. After resumption, the market showed no inclination of recovery, and the headline index ended with a deep cut of 1,135.20 points or 12.98 per cent at 7,610.25.
The index now stands at a 4-year low after suffering its biggest decline in its history in absolute terms. Volatility index or India VIX, also surged by another 7.28 per cent to the 71.99 level and hit fresh multi-year highs.
Nifty has slipped below the critical 7,850 level. Any pullback will find resistance near this zone. In the event of a technical pullback, the 7,850-8,550 zone will limit the upside.
With no signs of a bottom formation in sight, any pullback of this nature may prove to be deceptive.
At 8.00 PM (IST), Dow Jones was around 1.5 per cent down. If the US stocks manage to pare gains and there is no overnight weakness to deal with, then we may see the domestic market attempting to stabilise on Tuesday. However, India now has larger issues to deal with apart from the global trade setup, and this may hamper any attempt of a pullback.
Tuesday’s session is likely to see 7,750 and 7,850 levels act as resistance, while support may come in lower at 7,510 and 7,235.
There are more changes of a downside than the possibility of an upside.
The Relative Strength Index (RSI) stood at 19.04 on the daily chart. The indicator showed a clear bearish divergence as Nifty marked a fresh 14-period low, but the RSI did not. The indicator also remained in the oversold territory. However, looking at such divergences in isolation will be meaningless in the present scenario.
The daily MACD was bearish and traded below its signal line.
In the event of global markets stabilising, there will be a struggle between positive global setup and the domestic worries following the rise in the coronavirus cases.
There are higher possibilities of Nifty now entering a broad trading range once again if there is no incremental negative news flow to deal with. In either case, we recommend traders to stay away from the market and strictly avoid any significant exposures unless the market gains some stability.
(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)