Thursday was a trading holiday for India while the global markets were trading. Following weak global trade setup, Nifty opened with a gap down and marked the low point for the day in the afternoon session. The intraday range for the market was quite capped and limited. Some modest recovery was seen at lower levels. The headline index finally ended the day with a net loss of 302 points (-1.73%).
There are a couple of things that show that Nifty may be now staring at some imminent short covering led bounce from the current levels. The index has ended near the 50- and 200-DMA which presently stand at 17,157 and 17,164, respectively. Nifty has closed a notch above this point. It has held both these DMAs as of now as its support on a closing basis.
Secondly, for the second trading session in a row, Nifty has piled up significant short positions. This was evident as Nifty April futures has added over 2.94 lakh shares or 3.07 in net OI. The addition in OI along with the decline for the second day in a row show a continued build up of shorts in the system.
Tuesday may see the market trying to find some base for itself. The levels of 17,330 and 17,400 will act as probable resistance points. Supports come in at 17,150 and 17,000 levels.
The daily RSI stands at 45.52. It has marked a new 14-period low which is bearish. However, RSI is neutral and does not show any divergence against the price.
The daily MACD is bearish and stays below its signal line. A falling window occurred on the candles which was a result of a gap down opening in the markets.
All in all, regardless of the technical pullback, which is now imminent and can happen any time, closing of Nifty above 17,150 will be extremely important. If it is able to keep its head above this point on a closing basis, it will hold on to 200-DMA as its support on a closing basis.
Given the amount of addition of fresh short positions, it is strongly suggested to refrain from creating shorts. All down moves must be utilised to accumulate low beta stocks on a selective note. A cautiously positive view is advised for the day.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at [email protected])