While trading precisely on analysed lines, the domestic equity markets ended Monday with losses while heading towards the 8,500-100DMA support zone. On Tuesday, we may see the markets attempting to gain some stability but just like Monday, the levels of 8,500 and the 100-DMA which is also 8,500 will be crucial level to watch for. It would be extremely important for Nifty to trade above this level in order to avoid any more weakness from creeping in. Any breach below this will lead to some more weakness in the Markets.
For Tuesday, the levels of 8,545 and 8,580 will act as immediate resistance levels while supports come in at 8,500 and 8,420. The RSI—Relative Strength Index on the Daily Chart is 37.1088 and it has reached its lowest value in last 14-days which is bearish. It does not show any bullish or bearish divergence. The Daily MACD stands bearish as it trades below its signal line.
On the derivative front, the Nifty October futures have shed yet another over 4.86 lakh shares or 2.53 per cent in Open Interest. This clearly indicates continuation of long unwinding / offloading in the markets.
Coming to pattern analysis, Nifty breached a Descending Triangle pattern on the Daily Charts as it went below the 50-DMA which was also its neckline level of 8690. With yesterday’s decline, it has completed its expected measuring implication. While it reached its expected levels post negative breakout, the level of 8,500 is important pattern support as well. Post recent high of 8,968, the Nifty has formed a small falling channel as well. The level of 8,500 is a pattern support of the lower support line of the Channel and is also the 100-DMA which is expected to act as support in the near term at Close.
All and all, we are likely to see Nifty consolidating again and attempting to gain some stability. With the level of 8,500 being all important support, any pullbacks will continue to meet with intermittent selling pressures / bouts from higher levels. This will continue to happen until we see clear sign of resumption of up move. This will also keep volatility and choppiness ingrained in the Markets. Selective outperformance will be seen and it is advised to adopt highly stock specific approach in such markets.
(The author is CMT, Consultant Technical Analyst, Gemstone Equity Research & Advisory Services)