Market outlook: Technical pullback imminent; auto, metal packs may perform better
The domestic equity market remained weaker on Wednesday and continued its slide, as the benchmark Nifty50 ended the day with a net loss of 95.05 points or 0.93 per cent.
What was technically important was that the Nifty tested its 200-DMA, which was expected to act as major support. The 200-DMA level stood at 10,131.
Market remains precariously poised. The weakness was dominant in Wednesday’s trade as the Nifty showed no inclination to pullback despite.
We now have to approach Thursday’s session with two diverse facts in mind. First, the weakness in the general market is not showing any signs of backing off. Second, Nifty trades oversold on major indicators and we have seen high amount of shorts that have been built in the system, which can make short covering imminent.
Thursday will see the levels of 10,225 and 10,270 acting as immediate resistance zone for the market. Supports came in at 10,100 and 10,010 levels.
The Relative Strength Index (RSI) on the daily chart is 30.9247 and it has got nearly oversold. It has marked a fresh 14-period low, which is bearish. The daily MACD stays bearish while trading below its signal line. No significant patterns were observed on Candles. Pattern analysis clearly indicates that Nifty has broken down from the brief trading range that it formed during it recent declines.
It has breached the support zone of 10,276-10,300 and stands in extremely close vicinity of 200-DMA. If read in isolation, the structural weakness is now seen evidently on the charts. However, what forces us to wait for a very imminent technical pullback is that the lead indicators are oversold.
Coupled with this, we have created very significant amount of short positions over last couple of days. Further, if we look at all sector and broader market indices, they all are either deeply oversold, or are seen taking support at its 200-DMA.
In view of the above facts, we would strongly recommend trades to move out of any major short positions. There are chances of a technical pullback and the behaviour of the market vis-à-vis the 200-DMA at closing levels will be immensely important.
Resilient relative outperformance can be expected from select auto, metals and FMCG components.
STOCKS TO WATCH: Further shorts were seen on counters like ICICI Bank, State Bank Of India, Adani Power, Suzlon, RCom, Infratel, YES Bank and Hindalco. Resilient technical set up is seen in stocks like Team Lease, Rane Holdings, Weizmann, ITC, HCL Technologies, Dabur, PTC India and Tata Coffee.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)