The session on Tuesday was highly disappointing as Nifty50 plunged to a fresh 2018 lows, and slightly violated its important support zone at 10,276-mark.
The Nifty traded with modest gains all throughout the session, but the last hour and a half saw the market rapidly paring gains, as the benchmark ended the day with a net loss of 109.60 points or 1.06 per cent.
Going into trade on Wednesday, market faces an acid test. The support zone of 10,276 stands slightly violated. The Nifty reacted after it tested the 100-DMA level in the morning trade.
At present, the market remains precariously poised as on one hand it is likely to slip further, which may take it to test 200-DMA and on the other hand, it sits on a very large number of shorts, which may lead to short trap going further.
In any event, the behaviour of the market vis-à-vis the levels of 10,300 will be important to watch for. The levels of 10,310 and 10,365 will act as immediate resistance area for the market. On the other hand, supports came in at 10,210 and then further lower at 10,127.
The Relative Strength Index (RSI) on the daily chart is 34.2577 and it has marked a fresh 14-period low, which is bearish. It does not show any divergence against the price. The daily MACD continues to stay bearish, while trading below its signal line. A big black body emerged on the candles. This has lent credibility to the resistance area of the 100-DMA mark.
While having a look at the pattern analysis, Nifty has slightly violated the support area of the 10,275-mark and has ended a notch below that. This translates into violation of the small rectangle pattern that the Nifty developed after its recent decline.
Overall, the levels of 10,275-10,300 will remain extremely crucial to watch for. The longer the Nifty stays below 10,300 mark, higher will be the chances of it getting weaker and testing the 200-DMA levels.
On the other hand, Nifty will avert any weakness if it manages to crawl back above the 10,300-mark.
The global markets trade extremely stable. Though the Indian market remain sentimentally weak, owing to domestic reasons, it is not likely to remain decoupled with global stability for long time.
Given the massive amounts of shorts that still continue to get piled up each day, we advice participants to not to create any fresh shorts at current levels.
Staying away and remaining light on exposures is what is advised while adopting a highly cautious view on the market.
STOCKS TO WATCH: Large amount of short positions were seen being added on counters like SAIL, ICICI Bank, JP Associates, State Bank of India, Dish TV, Axis Bank, RCOM, ITC, Hindalco, Larsen & Toubro and DLF.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)