It was expected that the 10,700-10,750 range will attract some resistance to Nifty on Wednesday, leading to some consolidation. Nifty had a strong opening to the session and tested the high of 10,710. What happened after that was pretty severe and disappointing.
By mid-session, the market not only pared morning gains but also drifted deeper into the red. The benchmark Nifty50 ended 131.70 points, or 1.24 per cent, down for the session.
Fridays session will be hugely important as the directional bias that the market will take will have its impact on a few coming sessions as well. We will step into Fridays trade after a days gap. Friday would again be a last day of the week.
Chances are we will see a relatively stable opening for the market on Friday. There might be some attempts to recover, but the market will remain cautious and tentative all throughout.
The 10,510 and 10,590 level are likely to act as key resistance for Nifty50 while supports will come in at 10,400 and 10,310 levels.
The Relative Strength Index, or RSI, on the daily chart stood at 37.8107 and it remains neutral showing no divergence against price. The daily MACD is still negative even as it trades above its signal line. It is moving towards reporting a positive crossover in the coming days if the market witnesses some stability.
A large bearish engulfing pattern has emerged. Given the general decline that we have seen in the broader market, this may not be as damaging.
However, it has reinforced the 10,700-10,780 zone as a area of major resistance for the Nifty. If Nifty continues to consolidate or shows some downward bias, the 10,380-10,440 zone is likely to act as very important pattern support. The Nifty will have to sustain above 10,400 to avert any weakness. If these levels are breached, then we will again see Nifty struggle to find a base around its previous lows.
In the event of any upward move in the coming days, the 10,700-10,780 levels are likely to offer serious resistance to the index in the coming days.
We advise investors to remain light on positions and continue making select purchases, which should, in turn, be kept limited to defensives and in the sectors, which are showing relative outperformance against the broader market.
STOCKS TO WATCH:
Resilient behaviour is expected from stocks like Arvind, Tata Steel, MRF, Larsen & Toubro, ITC, Indiabulls Ventures, HUL, Lupin, Tata Chemicals, Aurobindo Pharma, Biocon and Mahindra Lifespace
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)