NSE Nifty fell for a fourth straight session on Wednesday, as it again gave up opening gains to end lower. The index continued to face resistance from its short-term 20-DMA at 12,213. The 50-stock pack settled the session with a loss of 62.95 points or 0.52 per cent at 12,106.90.
The technical setup on the daily charts looks predominantly bearish. With expiry of weekly options coming up on Thursday, Nifty’s behaviour against the 12,100 level will be crucial. This zone holds the second-highest Put open interest (OI), with 12,000 having the maximum OI. Any slip below 12,100 will result in more weakness. Also, as expected, the headline tested and took support at its 50-DMA at 12,104.
Thursday’s session is again likely to see a shaky start, and there is a possibility of a mild technical pullback, but sustaining gains will be difficult. The 12,135 and 12,170 levels will act as resistance, support may come in lower at 12,080 and 12,000.
The Relative Strength Index (RSI) on the daily chart was 45.36 and marked a fresh 14-period low, which is bearish. The indicator, however, did not show any divergence against the price.
The daily MACD was bearish and traded below its signal line. An Engulfing Bearish Candle was formed on the daily chart. This makes the setup even more bearish, and may result in continuation of the downtrend.
As per pattern analysis of the daily chart, Nifty has stayed within the broadening formation. The index marked its intermediate top near 12,400 and now has slipped below the short-term 20-DMA. At present, the index rests at 50-DMA support.
Given the expiry of weekly options, the market may witness higher than normal volatility. Nifty may see a technical pullback because of options expiry, but buying into these pullbacks, should be avoided.
As of now, the 50-DMA level has been acting as a support on a closing basis. Any breach below this level will drag market lower. We would recommend traders to avoid purchases during feeble uptick and adopt a highly cautious view on the market.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)
Source: Economic Times