Trade setup: Short covering may continue; 11,170 mark still key

After an immensely volatile session and gyrating over 180 points, the equity market ended with decent gains, as short covering fuelled the pullback rally in Tuesday’s trade.

The session remained technically important as Nifty held on to its 100-DMA on a closing basis after closing a notch lower in the previous session. At the end of the day, the index settled with a gain of 100.05 points or 0.91 per cent.

The Nifty also did not breach the previous immediate low of 10,866 and formed a marginally higher low of 10,882 on Tuesday.

On Wednesday we will enter the penultimate day of the expiry of the current derivative series, which has remained one of the most volatile series in recent times.

We expect a quiet start to the trade on Wednesday and the market is expected to remain volatile. However, continuation of the pullback is very much likely. In any case, the level of 11,170 will be important level to watch for in coming days.


We expect the levels of 11,090 and 11,170 to act as resistance area on the upside, while 11,010 and 10,935 are expected to act as supports.

The RSI on the daily chart stands at 37.3306. It remains neutral showing no divergence against the price. The daily MACD stays bearish while trading below its signal line.

As we approach expiry day, and as we navigate the last two sessions of the current derivative series, volatility is something that we will have to deal with.

In event of any weakness, the immediate past low of the market is not likely to be breached. On the upsides, the level of 11,170 will continue to provide resistance until it is breached on the upside.

We expect a rangebound and volatile trade going ahead with no significant downsides likely. We expect the short covering to continue. Exposures should still be kept moderate unless we move past the important 11,170-mark.

STOCKS TO WATCH: Short covering was seen in stocks like Adani Power, ICICI Bank, PFC, Dish TV, Tata Motors, Bharti Airtel, JSW Steel, SAIL, State Bank of India, Axis Bank, Hindalco, Infosys and Tata Power.

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