The Nifty continues to trade inside the Descending Triangle formation but the neckline support levels of 8,690 also coincides with 50-DMA which is 8,704.
In our Thursday’s edition, we had mentioned about the domestic equity markets remaining vulnerable to a profit taking bout from higher levels. While trading precisely on the analysed lines, the Nifty came off from its intraday highs by nearly 97-odd points to finally end the day with modest losses. On Friday, we expect a stable opening but also expect that volatility would continue to persist. The Nifty continues to trade inside the Descending Triangle formation but the neckline support levels of 8,690 also coincides with 50-DMA which is 8,704. These two levels will continue to act as a major support for the markets.
For Friday, the levels of 8,745 and 8,800 will act as immediate resistance levels whereas the supports will come in at 8690 and 8620 levels. The RSI—Relative Strength Index on the Daily Chart is 48.6811 and it remains neutral showing no failure swings or any bullish or bearish divergence. The Daily MACD continues to remain bearish while trading below its signal line.
On the derivative front, the Nifty October futures have shed over 2.07 lakh shares or 0.93 per cent in Open Interest. While having a look at pattern analysis, though it remains very much evident that the markets continue to remain trapped in a small Descending Triangle formation, it hangs precariously in a manner that will cause the Nifty to take a sharp directional bias in coming days. The neckline levels of this formation is 8,690. If the Nifty breaches this level, we will see some more weakness coming in. On the other hand, this neckline level, as mentioned above, also coincides with the 50-DMA levels which stands at 8704.
This is expected to act as important support for the markets at close levels. All and all, on Friday the session is likely to remain volatile and on the upper side, the levels of 8,800 will continue to pose stiff resistance. In the same breadth, the level of 8,690 will be the critical level to watch out for Nifty will have to trade above this to avoid any weakness. Stock specific purchases may be down but all up moves should be utilized to protect profits as intermittent selling bouts still cannot be ruled out at higher levels.
(The author is CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory Services)