Trade setup: Nifty50 may look to stabilise; avoid shorts for now

NEW DELHI: In a highly volatile session on Thursday, the domestic stock market fell for a fifth straight session. NSE benchmark Nifty opened in the red on the day of February derivatives series expiry and soon slipped below the crucial 10,550 level. After recovering over 100 points from the day’s low, the headline index settled 45.20 points or 0.39 per cent lower at 11,633.30.

Thursday’s session was important, as a couple of points indicated towards formation of a potential base for the near term. Although Nifty settled below all-important 200-DMA, which stands at 11,687, it stayed within its filter. Also, the index has not violated the double bottom pattern support. Moreover, it has formed a Hammer candle near these support zones. This points towards the market gaining some stability in the near term.

Friday’s session will see 11,680 and 11,745 levels act as strong resistance. Support may come in at 11,605 and 11,560.

The Relative Strength Index (RSI) on the daily chart was at 34.05 and formed a fresh 14-period low, which is bearish. The indicator did not show any divergence against the price.


The daily MACD was bearish and traded below its signal line. A Hammer candle was formed on the daily chart. As this pattern has occurred near the pattern support, it can help in the formation of a potential bottom for the market.

As per pattern analysis, Nifty has broken down from a broadening formation. The index now trades below all its key moving averages, but has stayed within the filter of its 200-DMA on a closing basis.

In case of a technical pullback, Nifty will form a descending triangle formation, and the broader setup is expected to remain bearish.

For the immediate short term, the market is showing signs of bottoming out. The index may gain stability and attempt a pullback. However, it is also important to note that a technical pullback will be primarily led by short covering in the initial phase.

We would recommend traders to refrain from creating fresh shorts and continue to make stock-specific purchases each dip that the market offers. 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)