NIfty: Trade Setup: Nifty50 stabilises; 18000 level to remain as key support

While the corrective undertone continued to persist on Monday, the markets also showed the first sign of getting some stability and taking some respite from the recent corrective action. Much on the expected lines, and as mentioned in the previous technical note, the levels of 18000 continued playing a pivotal role as the markets attempted to stabilize themselves. Nifty50 opened on a positive note but soon slipped in the red in the early minutes of the session to mark the low point of the day. The benchmark index recovered and went back to the positive territory by afternoon. After that, Nifty50 stayed in a sideway trajectory until the end. Following an over 250-point recovery from its low point, the headline index ended with a minor gain of 10.50 points (+0.06 per cent).

Nifty50 slipped below 18000 levels on Monday. However, a sharp recovery from that point has once again validated the level as a crucial support zone in the near term. Looking at the weekly options data, the Call unwinding seen at 18000 and 18200 levels also point at a greater likelihood of Nifty50 taking support at these levels. From the technical perspective, Nifty stares at a technical pullback if it keeps its head above 18000 levels. So, as long as this point is defended, all corrective moves, if any, will have limited downsides. Only a slip below 18000 will invite incremental weakness.

Tuesday is likely to see a positive start to the day. The levels of 18190 and 18270 will act as probable resistance points; the supports will come in at 18065 and 17950 levels.

The Relative Strength Index (RSI) on the daily chart is at 60.55. RSI is neutral and does not show any divergence against the price. The daily MACD is bearish and trades below the signal line.

Nifty formed a ‘Hammer’ like candle on the daily chart. This is not a classical ‘Hammer’ formation as it has a small wick that can be ignored. However, an occurrence of such a candle with a long lower shadow hints at a potential technical pullback. It can act as a reversal candle if it occurs following a downtrend. However, this would need confirmation on the next trading day.
All in all, although the trends in the markets will be influenced by reactions to the key numbers that will keep coming out, we will continue to see stock-specific performances dominate the broader market. We will see PSE Stocks, Auto, select private and PSU banks, and Infrastructure stocks getting stronger and trying to relatively outperform the markets. Hence, as long as Nifty50 is above the 18000 levels, we recommend avoiding attempts to short the markets. While keeping fresh purchases limited and selective, a cautiously positive approach 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)