In monetary policy review on Wednesday, the Reserve Bank of India kept all key ranges unchanged. Though this was widely expected, the equity market did not show much enthusiasm as the session remained weaker-than-expected.
The benchmark Nifty50 saw yet another decline and ended the day below, but within the filters of the 100-DMA losing 74.15 points or 0.73 per cent.
Going into trade on Thursday, the market awaits an imminent technical pullback. In most probability, the levels of 100-DMA should hold out as supports at the closing level.
Sooner the markets move past this 100-DMA mark, better it will be able to avoid any serious weakness from creeping in. The levels of 10,075 and 10,125 will play out as immediate resistance levels, while supports come in at 10,000 and 9,930.
The Relative Strength Index (RSI) on the daily charts is 33.5296 and it has marked a fresh 14-period low which is bearish. It does not show any divergence against the price and rests at Double Bottom support at current levels.
No significant formations were observed on candles. Pattern analysis confirms the levels of 10,410 as a lower top for the markets over past couple of days, and the Nifty has seen a consistent decline.
Currently it has ended slightly below the 100-DMA, mark but stays within its filters. The levels of 100-DMA remain significant from ways more than one.
The Nifty had crawled back above the 100-DMA mark in the end of January 2017 and has remained above this mark for entire part of 2017 as of now. Though there were minor breaches, but the Nifty has continued to take support at this DMA.
As of today, the VIX has tested its previous resistance, while the lead indicator RSI has marked a Double Bottom support. All this point towards increased possibility of an imminent pullback that the market is awaiting.
To further this, there are also a large number of shorts that await covering up at lower levels. Taking a broader view of all these, we recommend avoiding shorts completely and look for bargain purchases at lower levels.
STOCKS TO WATCH: In event of some consolidation of corrective move, the stocks like L&T Housing Finance, Reliance, Federal Bank, Igarishi Motors, Dish TV, State Bank of India and Tata Motors may show resilient behavior.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)