It was mentioned in a previous note that creating new shorts out of panic may not be a good way to navigate current volatility. Trading on expected lines, the markets staged a strong short-covering, leading to a rally, after which the market ended with strong gains.
As the day progressed, Nifty made a positive start and continued to strengthen. The index marked its high point of the day in late morning trade. After that, it largely maintained its gains by trading sideways and oscillating in a limited range. The benchmark index finally ended the day with a strong gain of 410.45 points (+2.53%).
Global markets continue to see technical pullbacks extending. With this we will inherit a strong global trading system on Monday. The gap is likely to open on Monday, and the technical snag we saw on Friday is likely to be exacerbated.
So far Nifty is below 200-DMA, which is currently at 16,903. With expected gap up opening, Nifty is likely to open at or above this point.
Moreover, the maximum call OI for this week’s options expiration is also at 17,000 level. This means Nifty is likely to open directly at the resistance point; The intraday trend developed after the opening will be the key to watch on Monday.
The market is likely to see 16,800 and 16,930 levels as resistance points. Support comes at 16,600 and 16,510 levels.
The Relative Strength Index (RSI) is 39.63; It has been seen rebounding from the oversold point. The RSI is neutral and shows no divergence against the price. The daily MACD is bearish and below the signal line.
Pattern analysis shows that the index has breached an upward trend line; It also slipped below the 200-DMA, which is currently at 16,903 levels. Along the way, both these levels can create resistance for the markets as technical glitches occur.
Overall, with the possibility of an almost certain gap-up opening on Monday, it would be wise not to chase such a gap on the upside. It would be wise to let the markets stabilize and develop some directional bias for the day.
The expectation of the markets to open is right near the resistance point. Hence, it will be important to watch and wait for the intraday trend to develop.
The high beta names that were beaten the most in the past week could see themselves pulling back in an equally strong way.
We can see that select bank, auto, metal and infrastructure stocks may see an extension of pullback; Also some defensive play can be expected in the consumption and IT groups.
Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and Founder of Equity Research.Asia and Chartwizard.AE (Chartwizard, FZE) and is based in Vadodara. He can be contacted at firstname.lastname@example.org
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