Stock Market

Trade setup: Nifty’s key support at 8,550; don’t chase pullbacks

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On expected lines, NSE Nifty on Tuesday failed to sustain at higher levels, and after coming off 500 points from the day’s high, the index slipped below the psychologically important 9,000 level.

It finally settled with a net loss of 230.35 points or 2.50 per cent at 8,967.05. Volatility index or India VIX surged another 6.88 per cent to 62.93.

Nifty is expected to consolidate in a broad range, with the 8,550 level acting as a base. The reason why the technical pullback did not sustain, is that global equities are grappling with sharply declining relative strength against other asset classes such as treasuries, corporate bonds and safe haven assets like gold.

Amid this setup, we can expect the market to consolidate after sharp declines. Dalal Street may again make a tentative start on Wednesday.

The 9,150 and 9,310 levels will act as resistance.

Support may come in at 8,805 and 8,605.

The trading range is again expected to stay wider than usual over the coming sessions. The Relative Strength Index (RSI) on the daily chart was at 17.57 and continued to remain in the oversold territory.

The indicator also showed a bullish divergence, as it did not mark a fresh 14-period low on the lines of Nifty. The daily MACD remained deeply bearish while trading below its signal line. As per the pattern analysis, after testing the low near 8,550, Nifty has not yet violated that level.

The index may now consolidate with a base near that point.

The rest of the short-term indicators stand deeply oversold, but they have little relevance amid the global weakness. When a trend is powerful, oversold markets tend to remain oversold and keep moving lower.

Just because a market is overbought is not a reason to sell.

Similarly, an oversold market is not a good enough reason to buy. Technical pullback, when the market is oversold, cannot be ruled out.

However, as and when they occur, their sustainability is a matter of great concern. Indian market, too, can see intermittent technical rebounds, but we would recommend traders to buy only when an area formation is seen and some mild signs of bottoming out appear. The global texture will continue to affect our market as well.

We recommend to adopt a highly stock-specific view and approach the market with high caution. (Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research - Advisory Services, Vadodara.

He can be reached at This email address is being protected from spambots.

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