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Tech charts signal Nifty pullback overdue; global forces won’t relent

Maintain a cautious outlook on the market and avoid fresh overexposure on either side.

Last Updated: Oct 04, 2018, 08.21 PM IST|Original: Oct 04, 2018, 08.21 PM IST
Maintain a cautious outlook on the market and avoid fresh overexposure on either side.
Possibility of a technical pullback was thrown in a disarray by o vernight global macroeconomic factors. Spurt in US 10-year bond yield and Dollar Index testing four-year high, resulted in further slide in the rupee. While brent crude price testing $86 a barrel and resultant weak Asian markets, all of acted against Indian equities.

The market saw a gap-down opening, as it started below 200-DMA level and continued to remain weak throughout the session. The NSE benchmark Nifty ended 259 points or 2.39 per cen down.

As we approach Friday’s trade, it would again be meaningless to analyse the market in a mechanical manner. Rather we need to look at macroeconomic factors that are giving tough time to the technical setup, and causing delay to an imminent and overdue pullback.

With the gap that got created on Thursday, the zone of 10,778, which is the 200-DMA and 10,860, the 90-point zone has become the turbulence area for the market in the near term. Any pullback will be met with some struggle in that area.

Having said this, it is important to note that Nifty has lost nearly 400 points on a closing basis in just two sessions. In the process, it has added over 25 lakh shares in open interest, which is a massive and significant figure. Just like on Wednesday, we also continue to see a bullish divergence on RSI, which now trades grossly oversold.

If we take a realistic view of the current structure of the market, there are a couple of factors that we need to consider. The oversold Nifty PCR -- oversold lead indicator with a bullish divergence -- massive addition of short positions and the index being deeply oversold on the short-term charts are few of the technical reasons that are highly favorable for a technical pullback.

Against this, the rising US bond yields, rising crude prices and strengthening dollar are the macroeconomic factors that are acting grossly against it.

Further, we are likely to see MPC raising domestic interest rates by 25 basis points. Certain quarters of the economy are also expecting a 50-bp rate hike.

Irrespective of this, it would be critically to see if the RBI flirts with the liquidity measures. So, discounting this event, if global macroeconomic factors cools down a bit, it is only a matter of time that the market will see an equally brutal short trap and a sharp technical pullback.

While maintaining a cautious outlook, fresh overexposure on either side should be avoided.

STOCKS TO WATCH: Stocks of Larsen and Toubro, NCC, Ashok Leyland, Tata Global, Eicher Motors, Tata Motors, Tata Steel, Nalco, Maruti, Vedanta, Hindustan Zinc, Axis Bank, and ITC may remain resilient in event of any weakness.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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