Choppiness prevailed in the domestic equity markets as it remained volatile in a given range. The NSE Nifty remains trapped in Descending Triangle formation and therefore on Thursday, and for coming sessions, the zone of 8,800-8,850 will continue to pose critically stiff resistance. For today, the level of 8,775 and 8,810 will act as immediate resistance while supports will come in at 8,690 and 8,665 levels.
The RSI—Relative Strength Index on the Daily Chart is 51.0806 and it remains neutral as it shows no bullish or bearish divergence or any failure swings. The Daily MACD stays bearish while trading below its signal line. On the candles, and engulfing black candle has occurred following a doji / long lower shadow. This has a potential to bring in short term weakness. However, this needs a confirmation on the following day.
On the derivative front, the NIFTY October futures have added just over 1 lakh shares in Open Interest. There is no significant unwinding of positions that was seen in the markets. While having a look at pattern analysis, it is very much evident that the NIFTY continues to remain trapped in a Descending Triangle formation. This formation has been characterised with falling tops and the bottoms remaining at 8,690. In the given context, the level of 8,690, which is the neckline, remains very critical support for the markets. On the other hand, given the falling nature of the tops, in coming days 8,800-8,850 zones will pose very stiff resistance. It is further evident that in case the NIFTY breaches 8,690 on the downside, we will see some more weakness creeping in. For the Descending Triangle to fail, it would be necessary that the NIFTY moves past 8,850 levels. Until this happens, it will remain vulnerable to selling pressure from higher levels.
Overall, just like Wednesday, today as well we keep our reading and conclusion on similar lines. NIFTY remains in the present potentially bearish formation of a descending triangle. Therefore, though we will continue to see stock specific purchases, it is advised that more cash levels should be maintained and all up moves should be continued to be used to protect profits at higher levels as intermittent bouts of profit taking at higher levels cannot be ruled out.
(The author is CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory)