Trade setup: Nifty may try a rebound on Tuesday, but tread very carefully

A weak setup in global equity markets took a toll on Indian equities on Friday, as the market saw a lower opening and went on to end the session on a negative note. Nifty witnessed a positive opening, but soon slipped into the red in the initial minutes of trade.

After trending sideways in a 120-point range, the index attempted a rebound from lower levels, but could not sustain the recovery. It gave up the gains that it had made from lower levels and ended the day with a net loss of 170 points, or 2.06 per cent.

On Tuesday, the market will open after a day’s gap as Monday was a trading holiday on account of Mahavir Jayanti. The index is likely to see a flat to positive opening as Nifty adjusts to the global trade setup.

As this piece was written, the US stock futures traded firm, and Asian markets were largely positive. If this trend continues, it is likely to help the Indian market open on a positive note. The higher timeframe charts are deeply oversold, which has already laid some groundwork for a technical rebound, even though there are no confirmation of any bottom being in place.

On Tuesday, Nifty is likely to see the 8,165 and 8,290 levels act as immediate resistance points, while supports will come in at 8,050 and 7,955 levels.



The Relative Strength Index (RSI) on the daily chart stood at 33.45. It remained neutral and did not show any divergence from the price. The daily MACD remains bullish as it stays above its signal line.

Pattern analysis of the daily charts showed after marking a low near the 7,500 mark, Nifty has formed a wide trading range between 7,850 and 8,550 levels. So far, Nifty has defended the lower support area at 7,850. The positive opening expected on Tuesday is likely to keep the index in the broad trading range, where it is expected to consolidate before deciding its further directional move.

All in all, the market has laid the foundation for a strong technical rebound, if the global trade setup remains positive. From a very short-term perspective, we strongly recommend traders to avoid creating heavy short positions even though there is no confirmation of any bottoming out yet. The market is again in a broad trading range, and heavy positions should be avoided on either sides. A cautiously positive approach is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)