Indian stock market witnessed deep cuts on Thursday despite making a rather stable start to the session. The NSE benchmark Nifty remained in the falling channel all throughout the day and settled with a loss of 120.25 points or 1.11 per cent.
Even as the market ended lower for a second straight session, it piled up a significant number of shorts in the system. Also, the index rests at the confluence of two short-term pattern supports. Given the technical set-up and the F&O data, we expect Nifty to give a technical rebound, which is now respectfully due.
The opening levels and the trajectory the Nifty forms thereafter will be important for the market on Friday. Any continued weakness will make recovery task difficult, even though huge shorts have been added over the past two sessions.
The levels of 10,710 and 10,785 will act as immediate resistance area for Nifty. The supports are expected to come in at 10,650 and 10,580 levels.
The Relative Strength Index (RSI) on the daily charts stood at 45.6452 and has formed a fresh 14-period low, which is bearish. It showed a bearish divergence against the price. The daily MACD is bearish, as it traded below its signal line.
As evident from the pattern analysis, the 100-DMA has reinforced itself as a major resistance area and Nifty has retraced twice from that level in the recent past. At present, it rests at the confluence of two short-term pattern supports.
Overall, though weakness might persist — if the overall sentiment is that of a risk-off — it is now overdue that the market would attempt to stabilise.
Over the past two sessions, Niftys current series has added over 18 lakh shares in net open interest, which indicates large creation of shorts in the system.
We recommend avoiding shorts at current levels, as it might lead to short trap, as the already present shorts may lend support at lower levels.
While avoiding any major exposures, liquidity should be preserved until some stability is seen in the market.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])
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