The domestic equity markets witnessed a range bound session on Friday and while it ended with very minor gains, the vulnerability continued to remain very much visible on the Daily Charts. On Monday, we might see a stable opening and some technical pullback as well but in any case, the up moves are likely to remain limited and the level of 8,500 would now be the key support levels for the markets as it also it is a important pattern support and also falls in close vicinity of the 100-DMA which is 8493. On Monday, the levels of 8,625 and 8,660 will act as immediate resistance levels whereas the supports will come in at 8,550 and 8,500 levels. The RSI—Relative Strength Index on the Daily Chart is 40.7080 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.
On the derivative front, the NIFTY October futures have 5.57 lakh shares or 2.81 per cent in Open Interest as it continued to see unwinding of long positions in the Markets. Coming to pattern analysis, the NIFTY has clearly shown a downward breach from the Descending Triangle formation on the Daily Charts. On the Weekly Charts as well, short term weakness remains evident and visible. Returning back to Daily Charts, it is likely that in event of some more weakness, the NIFTY has major support at 8500 level. This is a major pattern and also coincides with 100-DMA which is 8493. This zone should act as major support for the Markets. In event of any technical pullback, the level of 8690 will remain a very stiff and sacrosanct resistance in immediate short term.
All and all, it is also important to note on fact that the while the Markets have declined, it has consistently seen reduction of open interest. This is because of steady unwinding / off loading of long positions. At the same time, a fact needs to be observed that there is no visible creation of major shorts in the system. This requires us to sound some more caution as in event of any further downsides, the NIFTY will see difficulty finding support from the short positions. We reiterate to use all technical up moves in protecting profits and maintain cautious outlook on the Markets.
(The author is CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory Services)