Nifty50: Trade Setup: Nifty sees technical pullback; breaching 18000 level key at this stage

Nifty50 staged a strong technical pullback as anticipated on Monday, in the process, it validated certain levels as intermediate support levels for the near term. Nifty50 opened on a positive note and it stayed positive throughout the session. For the first half of the day, Nifty50 traded in the green but remained mostly in the sideways trajectory. The second half of the session saw Nifty getting stronger; it moved past the crucial 17900-level. The headline index finally ended the day with a net gain of 258 points (+1.46 per cent).

Tuesday’s session is set to be important from a technical perspective; it would be imperative for the Nifty50 to scale past 18000-level and keep its head above this point. The 18000-level was the lower edge support of the broader 18000-18600 trading range that the market had formed for itself. So long as Nifty50 stays below 18000-level, it will remain prone to some more consolidation. In other words, the price action of Nifty against the level of 18000 will be crucial to watch for. The upmove has been on the account of short-covering as it resulted in a minor decline in Net Open Interest in Nifty futures. It would be interesting to see if this is replaced by fresh buying.

A silent start to the day is expected on Tuesday. Nifty50 is likely to find resistance at 18000 and 18090 levels. The supports come in at 17880 and 17800 levels.

The Relative Strength Index (RSI) on the daily chart is at 51.02. It is neutral and does not show any divergence against the price. The daily MACD is bearish and trades below the signal line. Nifty50 formed a white-bodied candle on the daily chart; this reflects the directional consensus of the market participants on the downside.

The pattern analysis shows that after violating the lower edge support of 18000, Nifty50 has rebounded after going very near to the 50-DMA. The 50-DMA is presently at 17592 and remains crucial support in the near term. With 18000-level being the support level that was violated, it may pose as resistance to the index when it pulls back.
All in all, given the present technical structure, Nifty50’s behavior vis-à-vis the level of 18000 will be crucial to watch. For this technical pullback to continue, it will be very important and necessary for Nifty50 to move past the 18000-level. As long as it stays below this point, it will remain vulnerable to profit-taking bouts and consolidation. Action in the markets will remain highly stock-specific. Regardless of the sector that they belong to, we will see select relative outperformance coming in from stocks from the Midcap universe, PSE, select banks and Auto along with Oil and Gas. We recommend avoiding shorts and if any further downsides, we recommend making select purchases in modest quantities.

(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)