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Trade setup: Nifty50 now likely to find bottom at 20-DMA level

The Tuesdays session saw the equity market trading in a down..

The Tuesdays session saw the equity market trading in a downward trajectory, as the NSE benchmark Nifty slipped further and ended the day 89.40 points or 0.83 per cent lower. The market remained in falling trajectory throughout the session and at no point did it make any attempt to recover.

As we approach Wednesday, there are chances that Nifty attempts to stabilise as it currently rests near its short-term 20-DMA. However, there are higher chances that we may see some amount of weakness persisting in the market. In any situation, no runaway technical pullback is expected. The opening is expected to be tepid.

The levels of 10,745 and 10,820 are likely to act as immediate resistance area for Nifty on Wednesday. Supports may come in at 10,690 and 10,650 zones.

The Relative Strength Index (RSI) on the daily chart stood at 50.2903 and it remained neutral showing no divergence against the price. The daily MACD remained bullish while trading above its signal line. However, it was seen narrowing its trajectory. On the candles, a big black body occurred, and this reinforces the credibility of the resistance area of the 10,820-10,850 zones.

Pattern analysis showed that the Nifty is forming a large symmetrical triangle formation as evident on the daily charts. The index is resisting to the falling trend line of this formation drawn from 11,170, which joined the subsequent lower tops.
Overall, NIFTY has rested on its short term 20-DMA, and we expect some stability to come in. However, with lack of any major trigger, and with the present technical structure, we might continue to see tepid behaviour.

The important support now come in the form of 50-DMA, which remains in close vicinity of 10,653. This is likely to act as important support on closing basis. Overall, in any case, we do not expect any runaway technical pullback to occur.
We expect market to remain rangebound and see the session highly stock specific. While keeping overall exposures at modest levels, cautious outlook is advised for the day.

STOCKS TO WATCH: Short positions were seen being added in South Indian Bank, ICICI Bank, Bank Of India, ICICI Bank, Ashok Leyland, RCom, India Cements, SAIL, Bank Of Baroda, CG Power, Federal Bank and Tata Steel.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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