market outlook: Trade setup: Nifty may witness some technical pullback; support seen at 15,570

The bearish undertone prevailed on Tuesday as the Nifty continued to slide and tested its important support levels to end on a negative note. The market saw a negative start to the day and got weaker as the day progressed. At one point in time, the Nifty slipped below the 15,600 level.

The second half of the session saw some recovery coming in from lower levels. While the markets recouped some portion of its loss, the final hour and a half saw weakness returning again. The index finally ended with a net loss of 120 points or 0.76 per cent lower.

Tuesday’s session saw the Nifty testing its 50-DMA, which presently stands at 15,570. Going ahead, in the immediate short term, this point will act as an important support on a closing basis. We also enter the expiry of the weekly options. High Call writing and Put unwinding was seen at 15,700 levels; 15,800 continues to see highest Call OI accumulation.

On the lower side, 15,500 holds maximum Put OI, and it is expected to act as support. If any technical pullback occurs, the levels of 15,700 and higher will offer resistance for the market.

Volatility increased as India VIX rose 4.14 per cent to 13.2050. Thursday is likely to see the levels of 15,680 and 15,765 being tested. The supports come in at 15,570 and 15,500 levels.
The Relative Strength Index (RSI) on the daily chart is 45.41. It has marked a new 14-period low, which is bearish. RSI, however, is neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line. A black body emerged on the candles. Apart from this, no other formations were seen.

The pattern analysis shows that Nifty has failed to break above the 15,900 levels. The index did give an incremental high at 15,962, but the breakout failed to give any confirmation. This makes the zone of 15,900-15,950 an intermediate top for the markets.

Given the two days of decline, there may be some technical pullback in the market. The opening levels of the Nifty and intraday trajectory that it forms will be crucial to determine the trend for the day. However, even if a technical pullback occurs, the upsides will remain capped above the 15700 levels and higher. Watching Nifty’s behavior vis-à-vis the 50-DMA on a closing basis will also be important. We recommend continuing to approach the markets selectively and with a cautious outlook.

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