Friday's market action will see some more choppiness while the developments in the region are closely monitored.
Equity markets, at this juncture, need to be analysed from more than one perspective, both technical and otherwise. The breaking of the news on Thursday afternoon about the India carrying out surgical strikes across LoC spooked the equity markets while they ended with a deep cut on heavy volumes. However, this being said, it should also be borne in mind that apart from geopolitical tensions that sprung up suddenly, the markets had been demonstrating short-term structural weakness on the daily charts. We had categorically mentioned the zone of 8,780-8,820 being the potential stiff resistance levels for the markets. Though the news broke out in the afternoon, the markets were already off its highs of 8,800.65. However, it is much evident that the developments after that added to the quantum and ferocity of the downside. Friday’s market action will see some more choppiness while the developments in the region are closely monitored.
Speaking purely on technical terms, the levels of 8,640 and 8,680 will now act as major resistance levels in event of any pullback. Support levels of 8,530 and 8,485 will be important to watch out for. The RSI—Relative Strength Index on the Daily Chart is 40.1445 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 stays bearish trading below its signal line.
On the Candles, there is a contradictory reading. A Engulfing Bearish Candle has occurred. On one hand, it can mark a potential pullback as it has occurred after a decline. On the other hand, the markets have given a downward breach from a pattern and with a Big Black Candle, this has lent credibility to the downward breach and explicitly more weakness in coming days. The pattern analysis gives a clearer view as well. The markets have breached on the downside from a Descending Triangle formation on the Daily Charts after forming a lower top at 8,900 levels. If we take a purely technical measuring implication of this development, it would be no surprise if the markets tests its 100-DMA in coming days. On the other hand, the level of 8,680 that it breached will now act as a stiff resistance in event of any pullback.
All and all, though we analysed a technical picture above, the geopolitical developments will continue to dominate the market movement. The volatility will continue to remain in grained and we strongly advise to preserve cash levels. Though downsides may be utilised to make purchases, all technical pullbacks should be vigilantly used to protect positions. Highly cautious approach with preservation of cash is advised.
(The autor is CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory Services), Vadodara. He can be reached at firstname.lastname@example.org)