Though the equity markets on Friday recovered off its lows to end the day with minor losses, it continued to resist at 8,690-8,710 levels for the entire session. On Monday, we will continue to see the Nifty resist to these levels and the behaviour vis-à-vis the 50-DMA of 8,709 will be critical to watch out for. However, we may continue to see some resistance at these levels, some consolidation will happen but will happen with a positive bias as lead indicators are showing possible resumption in uptrend in coming days.
For Monday, the levels of 8,710 and 8,745 will act as immediate resistance levels. The supports will come in at 8650 and 8605 levels. The RSI—Relative Strength Index on the Daily Chart is 50.3060 and it remains neutral as it shows no bullish or bearish divergence or any failure swings. The Daily MACD stays bearish as it trades below its signal line. However, if the Nifty continues to consolidate, we may see this indicator reporting a positive crossover. A minor engulfing candle on the Candles indicates a potential positive bias. However, this needs confirmation on the following day. On the derivative front, the Nifty October futures have shed over 3.90 lakh shares or 2.10 per cent in open interest. This shows some possible short covering that happened in the second half of the session on Friday. The key would be to see if this gets replaced with fresh buying in coming days. Coming to pattern analysis, the markets continues now to remain in a falling channel drawn from 8,968 levels. In between this formation, it is resisting to its 50-DMA which is 8,709 and this may act as immediate resistance at close levels. However, for the Nifty to resume its up move, it needs to move past the levels of 8,740-50. Until this happens, we will continue to see the Nifty oscillating in a trading range.
As it has happened in the previous week, we will continue to see outperformance from select stocks and individual stock specific performance may continue. However, given the indications from the lead indicators, we advice to refrain from any major short positions and use downsides to make fresh purchases. Midcaps, energy, and auto stocks will continue to outperform. Overall, cautiously positive outlook is advised for the day.
(The author is consultant technical analyst, Gemstone Equity Research & Advisory Services)