Domestic equity markets traded very much on expected lines on Thursday as weak technicals forced a lower opening and the Markets ended with a deep cut showing a clear downward breach from the current Descending Triangle formation. On Friday, we can expect a stable opening but overall, in coming days, it would not be a surprise if the markets test its 100-DMA as it would also complete measuring implications of the current pattern on the Daily Charts. On the upside, the level of 8,690 will now act as formidable resistance in event of any pullbacks.
For Friday, the levels of 8,620 and 8,645 will act as immediate resistance levels and the supports will come in at 8,540 and 8,485 levels. The RSI—Relative Strength Index on the Daily Chart is 39.8437 and it has reached its lowest value in last 14-days which is Bearish. It does not show any bullish or any bearish divergence. The Daily MACD stays bearish as it trades below its signal line. On the candles, a falling window occurred. This is a gap and a big candle that occurred in this formation established the credibility of the downward breach from the current support level.
On the derivative front, the Nifty October futures have shed over 14.36 lakh shares or 6.77% in open interest indicating good amount of unwinding of long positions. The NIFTY PCR now stands significantly below 1.
Coming to pattern analysis, the Nifty was in a small Descending Triangle formation over couple of days. The neckline support was at 8,690 which also coincided with the 50-DMA. In Thursday’s session the Nifty has given a sharp downward breach from this bearish formation. Going by the measuring implications, it would be no surprise if the Markets tests its 100-DMA which would act as a major support at close levels.
Overall, there might be some technical pullback but in that case, the level of 8690 will act as formidable resistance to any up move. It would be important to note that stock specific performance will remain the highlight of the session and this will continue as the Markets will individually reward good stocks who would report good numbers. Apart from this, the negative bias is expected to continue. It is advised to keep overall exposure to moderate levels while maintaining highly cautious outlook on the Markets.
(The author is CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory Services)