Trade setup: Time for pullback, but Nifty will get sold off on higher side

In our previous note, we had mentioned about the possibility of Nifty continuing with the downward move as it had ended Monday’s session outside the lower bottom of the Rising Wedge. The market saw a gap-up opening following a favourable global trade setup.

However, while trading precisely on the analysed lines, Nifty opened right near the resistance point of the lower end of the wedge and got sold out at those levels. The index came off over 260 points from the intraday high and ended with a net loss of 87.90 points, or 0.95 per cent.

Despite some intraday swings that Nifty witnessed, volatility index India VIX eased a bit as it declined 0.14 per cent to 43.60. Nifty has finally fallen out on the downside from the Rising Wedge formation. Any up-move from now on will remain limited in extent, and the market will continue to exhibit a bearish bias over the immediate short term. Derivatives data showed long unwinding from higher levels as declines have come with a significant amount of reduction in open interest in Nifty futures.

Nifty is likely to see the 9,245 and 9,335 levels act as the overhead resistance in Wednesday’s session, while supports will come in at 9,160 and 9,065 levels. The upside may remain capped, but any move on the downside is likely to widen the trading range.

ET CONTRIBUTORS

The Relative Strength Index (RSI) on the daily chart stood at 48.52. It remains neutral and does not show any divergence against price. The daily MACD continues to remain bullish as it trades above the signal line. The histogram slop is declining, and this shows a deceleration in the ongoing momentum. A strong black body emerged on the candles; it signified the consensus on the trend on the downside.

Pattern analysis showed Nifty has expectedly fallen out on the downside from the Rising Wedge formation. In the previous session, it had ended outside the lower boundary of the area pattern, and now it has continued with its slide.

Given the over 650-point decline in Nifty in two days, there may be a mild technical pullback. However, such pullbacks will continue to be shortlived and limited in their extent. Any move on the upside will make some room for more selloff from higher levels.

Some amount of volatility may make its incremental presence felt. It is recommended to avoid making purchases on any pullback and approach the market with a great amount of caution.

(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)