After suffering a gap down opening on Monday, the equity markets showed no signs of recovery and finally Nifty ended the day with a loss of 151.10 points. With the Monday’s session, the markets have received a 100 per cent throwback / retracement from the of 8700-8730 levels from where it had achieved a breakout on the upside. After losing 237 points in two sessions, we can expect the markets to attempt and stabilise today. Though intraday trajectory would be critically important to watch out for, the behavior vis-à-vis the levels of 8,700-8,730 zone would be crucial to watch out for.
For Wednesday, the levels of 8700 and 8675 will be the important levels which are expected to act as supports. The resistance can be seen at 8745 and 8755 levels. The RSI—Relative Strength Index on the Daily Chart is 50.4574 and it remains neutral as it shows no bullish or bearish divergence or any failure swings. Though the Daily MACD still remains bullish while trading above its signal line, it has reported a Bearish Divergence. A Falling Window, i.e. a gap created on the Candles may see the markets struggling somewhat more at current levels. However, this needs confirmation on the following day.
On the derivative front, the NIFTY September futures have shed over 6.28 lakh shares or 1.88 per cent in Open Interest clearly indicating offloading / unwinding of long positions. Pattern analysis on the Daily charts makes it evident that the markets have seen 100% retracement / throwback back to 8700-8730 zone after breaking out on the upside couple of days back. This usually implies that we may see some stability returning to the equity markets but in the same breath, the levels of 8730-8700 would be critical to watch out for. Any breach below this level will see some more weakness creeping in.
All and all, though we cannot expect an outright pullback, we can certainly hope for some stability to return and for this, it would be important to see the NIFTY not breaching the 8,700-mark. Some of the sector indices like CNXIT has shown potential bottom formation while forming an engulfing bullish candle and therefore we may continue to see outperformance in such stocks. Pharma and other select stocks may also see some outperformance. Overall, cautious outlook ahead for the markets today.
(The author is Milan Vaishnav, CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory Services)