Stock Market

Trade setup: Nifty50 has support at 50-DMA; avoid shorts for now

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The market opened on a subdued note on Tuesday and remained rangebound for the first half of the session.

However, the last two hours of the trade were very disappointing, as the rupee fell to its fresh lifetime low, and it affected the domestic market, which were grappling with negative global cues. The NSE benchmark Nifty saw a sharp decline and went on to test its 50-DMA before ending the day with a deep cut of 150.60 points or 1.32 per cent. The damage was secular, and all the sectoral indices ended in the red.

The Nifty has ended a notch above its 50-DMA, and we can expect this level to act as support on a closing basis.

The index has lost over 300 points in the last two sessions.

We can expect some support to come in at the c urrent levels. A muted start to the trade cannot be ruled out on Wednesday.

Even if there are minor downsides, the 50-DMA level, which stand at 11,274 level, should act as an interim support. The levels of 11,325 and 11,390 are expected to act as technical resistance to Nifty, whereas 11,250 mark followed by 11,210 is expected to lend support. The Relative Strength Index (RSI) on the weekly chart is 40.2086.

It is bearish, as it has marked its fresh 14-period low, but it shows no divergence against its price. The daily MACD stays bearish trading below its signal line.

The pattern analysis shows that the market is classically reverting to its mean after it ran away too ahead of its curve.

However, Tuesday’s decline was slightly overextended in nature. Overall, as we approach the market on Wednesday ahead of the holiday on Thursday, we recommend staying away from taking any directional call in the market. Shorts should be avoided, as there is little tradable gap on the downsides, and also because there are still significant number of shorts that exists in the system. On the long side, there are chances of participants turning cautious at higher levels in event of a pullback given a trading holiday in between. We recommend avoiding any kind of directional bets in the market until it is seen getting little stabilised.

While preserving liquidity to protect existing trading positions, very cautious view is advised for the day. STOCKS TO WATCH: Stable technical conditions are observed in stocks of Infosys, Andhra Bank, RBL Bank, Asian Paints, Alankit, Century Plyboards, CITI Union Bank, Apollo Hospitals, Nitin Fire Products, CCL Products and Motilal Oswal Finance. (Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research Advisory Services, Vadodara.

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

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