Trade setup: Structural weakness persists; time to avoid large exposures

Following strong relative outperformance from the banking and financial stocks, Nifty staged a remarkable recovery from its lows before continuing to end on a negative note.

The market opened gap down once again and continued getting weaker until afternoon trade. However, after it marked a low of 16,866 down over 400-point, Nifty staged a remarkable recovery from the low point. The index managed to rebound over 270-points from its lows; but saw some corrective pressure once again. It settled at 17,110.15 with a net loss of 167.80 points (-0.97 per cent).

The market also saw expiry of the January derivative series. The session remained influenced by the rollovers. The highest Put OI stood at 17,100; this made sure that Nifty settled above that point. Bank Nifty and the financial services index strongly outperformed the front line Nifty. However, broader markets did not perform at all. Bank Nifty gained 0.73 per cent, Nifty Midcap100 Index 1 per cent.

While Nifty has made a strong attempt to form a base around current levels, moving past the 17,200-17,300 zone will be crucial for a sustainable up move to occur. Nifty still has a possibility of staying under corrective pressure if this zone is not taken out convincingly.

Volatility cooled off a bit; India VIX came off by 1.37 per cent to 21.0650. Friday is likely to see the levels of 17,190 and 17,250 acting as resistance points. The supports will come in at 17,000 and 16,900 levels. Just like the previous session, the trading range is once again likely to stay wider than usual.

The Relative Strength Index (RSI) on the daily chart is 37.24; it shows a mild bearish divergence against the price. The daily MACD is bearish and trades above the signal line.


Despite the markets staging a strong recovery from the lower levels, Nifty has not only ended on a negative note but the broader markets have also put on a weak show. The market breadth remained weak.

The markets may still show attempts to rebound and move higher; the structural weakness still persists. Also, the zone of 17,200-17,300 remains a strong resistance zone for the markets. It would be imperative for Nifty to move past this level. Until this happens, the index will not be completely out of the woods and it would remain prone to corrective weakness.

It is recommended to avoid large exposures and adopt a highly selective approach towards the markets.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)