Technical Analysis

Wait and watch; go short if Nifty slips below 12,750

Akhil Nallamuthu BL Research Bureau | Updated on November 20, 2020

Breach of 12,700 can intensify the sell-off, possibly declining to 12,650 quickly

Nifty 50 November Futures (12,755)

The Asian markets look mixed as the Nikkei 225 and the ASX 200 are trading lower by 0.4 per cent and 0.1 per cent respectively, whereas the Hang Seng and Shanghai composite indices are up 0.4 per cent and 0.2 per cent respectively, so far. Notably, the US market ended on a positive note in the last session, with the Dow registering a gain of 0.15 per cent and the broader index S&P 500 rising 0.4 per cent.

Against this backdrop, the Indian benchmark indices, i.e. the Nifty 50 and the Sensex, managed to open with a gap-up and rallied during the initial hour. However, the rally could not sustain, and the indices started to depreciate and are trading lower by a quarter per cent each.

The market breadth of the Nifty 50 index is almost equally divided, with the advance-decline ratio standing at 26-24. India VIX – the volatility index – which dropped to 17 today from Thursday’s close of nearly 19.6 has been rising in the past hour, and is now at 19.45.

Even as the benchmark indices are trading lower, the mid-cap index is trading flat and the small-cap index up 0.4 per cent. Among the sectoral indices, the Nifty IT index, up by about 1 per cent, is the top gainer today, followed by the Nifty FMCG index, up nearly 0.8 per cent. At the other end, the Nifty media index is the top loser, down 1.2 per cent, followed by the Nifty private bank index, down 1 per cent.

Despite the Nifty 50 spot index beginning with a considerable gain, the futures contract of the index opened flat at 12,795 today. It then rallied to a high of 12,849. However, the contract started to decline from the day’s high and is currently trading at around 12,755 after making a low of 12,744.

The price level of 12,750 is a support for the contract. So, even as the price action is indicating a bearish bias, traders can wait for now and initiate fresh short positions if the contract slips below the support of 12,750. Stop-loss can be placed at 12,800. On the downside, the contract is likely to fall to 12,725, below which 12,700 is the support. A breach of this level can intensify the sell-off, possibly declining to 12,650 quickly.

Strategy: Short the contract if it breaches the support of 12,750

Supports: 12,725 and 12,700

Resistances: 12,800 and 12,850

Published on November 20, 2020

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