Nifty50: Trade Setup: Nifty likely to see technical pullback; key 18k level to act as resistance point

In what can be termed as the worst-than-expected performance in the recent past, the Indian equities witnessed strong selling pressure throughout the session on Thursday, as it ended with a deep cut. Nifty50 opened on a modestly negative note. However, the headline index did not move into the positive territory even once. Nifty50 witness a gradual but sustained selling pressure throughout the day which took it to violate the crucial support of the 18000-level. The benchmark index slid even further, showed no signs of any major pullback, but ended with a net loss of 353.70 points (-1.94 per cent) after a very modest recovery.

Nifty50 has violated its key levels which is a bit damaging from the technical perspective. Even if we attribute this kind of selling pressure to the expiry of the current derivative series, Nifty50 breaching the 17950-18000 levels has not only violated major basing pattern support, but it has also dragged lower the resistance points for itself going ahead. From the immediate short-term perspective, even if Nifty50 pulls back and tests 18000-level, it will not only find a very stiff resistance at this point but it will also face resistance from a falling trend line which is drawn from the high point of 18600 and joins the subsequent lower top at 18350.

Volatility surged on expected lines as India VIX surged 6.44 per cent to 17.9125. The Relative Strength Index (RSI) on the daily chart is at 48.25; it has marked a new 14-period low which is bearish. However, RSI remains neutral and does not show any divergence against the price. The daily MACD is bearish and below the signal line.

Nifty50 formed a large black-bodied candle on the daily chart. This reflects a high degree of directional consensus that existed with market participants for today.

On Friday, the markets may see a jittery start to the day, but any pullback attempts will find resistance at 17935 and 18000 levels. Supports now exist at 17780 and 17700 levels.
All in all, going by the pattern analysis, Nifty50 has dragged its resistance points lower. Despite the weakness in the markets, there were few pockets that acted in a very resilient manner against the broader weakness. We can expect this resilience to continue from these pockets for the coming days. Select stocks from the broader midcap universe, PSE, Auto, Pharma, and Oil & Gas space may show great relative strength against the broader markets. We recommend selective purchases in this space. With selling getting over-done in the short-term, some respite through a technical pullback can be expected.

(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)