Trade setup: Trade setup: Stick to defensive stocks; 14,700 and 14,765 crucial resistance levels for Nifty

Partial lockdown in Maharashtra and unabated rise in the fresh Covid cases dampened the sentiments in the market. The Indian equity markets grossly underperformed the global peers and ended with a cut. The market saw a weaker-than-expected opening and weakened further as the day progressed. It soon slipped below the psychological 14,500-levels at one point. However, the Nifty did recover from its low point, though not substantial. The headline index finally ended the day with a net loss of 229.55 points (-1.54%).

Looking from a technical perspective, despite the ferocity of the decline, Nifty has not damaged the broader technical picture on the charts. The index still remains in the falling channel that it has been in over the past many days. However, it has again slipped below the 50-DMA, which presently stands at 14,788 and has closed below this point. This level of 50-DMA will continue to post a serious resistance on a closing basis for the index. The volatility spiked on the expected lines as the India VIX rose 6.14% to 21.2150.

Tuesday is likely to see a tepid start to the day. The levels of 14,700 and 14,765 will act as resistance points; the supports will come in at 14,600 and 14,500 levels.

The Relative Strength Index (RSI) on the daily chart is 47.19; it has remained neutral and has not shown any divergence against the price. The daily MACD is bearish and remains below its signal line.

The pattern analysis on the daily charts show that Nifty is in the falling channel, which is formed following the retracement from the all-time high point of 15,431. The index has not violated either end of the channel, except that it has slipped below the 50-DMA level on a closing basis. This level will continue to act as a resistance.

The defensive play was evident in the previous session as IT, pharma and mid-cap and consumption stocks did better. This setup is likely to persist over the coming days as well. It is expected that the Nifty will continue to exhibit a tentative bias and stay within a broad and defined range and within the present falling channel. It is recommended that while keeping the exposures at modest levels, it would be prudent if the markets are continued to be approached on a selective note while vigilantly guarding the profits at higher levels.

(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)