Trade setup: Nifty50 still not out of the woods; 10,800 level will be key
The Fridays session saw a sharp uptick in NSE benchmark Nifty, as the index ended with a decent gain of 125.20 points or 1.18 per cent. The surge was mainly on account of short covering in the market.
As we approach Mondays trade, we still need to be cautious. The Nifty is not out of the woods yet. With the sharp technical pullback that was witnessed on Friday, it remains unclear whether the downward breakout in the Nifty has ended or the present pullback just remains a dead cat bounce.
Monday will continue to see the levels of 10,765 and 10,800 posing resistance to the Nifty. Supports may come in at 10,690 and 10,610 zones.
The Relative Strength Index (RSI) on the daily chart is 50.0297 and it remains neutral without showing any kind of divergence against the price. The daily MACD is still bearish while trading below its signal line. No significant formations were observed on the candles.
If we look at the pattern analysis, the Nifty has pulled back sharply after slipping below its 50-DMA. At present, it has inched higher than the 50-DMA and has held this as support at the close. On the other hand, the downward breakout from the large symmetrical triangle still continues to persist.
Overall, we recommend continuing to approach the market with caution. We might see a flat to mildly positive start to the trade on Monday, but it would be critical for the Nifty to move past the 10,800-mark for a sustained pullback.
It is not yet confirmed whether the downward breakout of the Nifty has failed or the present upmove just remains a dead cat bounce.
We recommend remaining largely exposed to the largecaps, as the broader market may still continue to see some prolonged pressure.
STOCKS TO WATCH: Relatively resilient technical set up was observed in stocks of IDBI Bank, Adani Power, Jain Irrigation, Ashok Leyland, Tata Motors, Idea, ITC, Tata Steel and Jet Airways.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)