Trade setup: Nifty setup evidently bearish; stay highly stock-specific

While refusing to take any directional cue, the Nifty again retraced from its resistance point and ended on a negative note while testing its crucial supports. Markets opened on a modestly positive note following stable global cues. However, Nifty soon pared its gains and slipped in the red only to recover and move inside the positive territory again. The markets spent the first half of the session in a capped and rangebound manner. However, the afternoon trade saw sharp paring of gains by the market. The Nifty came off by over 150 points from the high point to end with a loss of 137.65 points or 0.94 per cent.

From the technical perspective, Nifty is again placed at a very crucial juncture. On one hand, it has tested the important 100-DMA support again. 100-DMA presently stands at 14,486. While it stays inside the falling channel and in between the 50-, and 100-DMA, the Nifty PCR has fallen to 0.92, which takes it very near to the oversold values. Though it is still not oversold, the Nifty has added a large number of shorts as well. This is evident from the addition of over 4.71 lakh shares or 4.49% in Nifty Future Open Interest for the current May series. Since this addition of OI has come with a decline in the price, it indicates addition of fresh short positions.

The opening on Wednesday and the trajectory that the markets form will be crucial to decide the trend for the day. The levels of 14,550 and 14,600 will act as resistance points. The supports will come in at 14,450 and 14,350 levels.

The Relative Strength Index (RSI) on the daily chart is 46.26. It stays neutral and does not show any divergence against the price. The daily MACD is bullish and remains above its signal line. However, the narrowing slope of the histogram shows paring/slowing down of the momentum in the market.

If we look at the options data of the weekly May 06 expiry, the strikes of 15,600 and 15,700 have seen a significant amount of addition of Call Open Interest. This indicates that in the event of any up moves, these levels will continue posing strong resistance to the markets.
All and all, if we have a standalone look on the structure of the charts, it stays evidently bearish. It would be crucial for the Nifty to keep its head above the 100-DMA level, which is 14,486 on a closing basis. If there is a violation of this point on a closing basis, we may see incremental weakness regardless of all the structure mentioned above. Given the number of shorts in the system, we will continue seeing intermittent pullbacks from lower levels. We reiterate that it would be prudent to continue staying highly stock-specific and approach the market on a highly cautious note.

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