Nifty outlook: Expect good start, key resistance at 200-DMA

A session of perfect consolidation turned out to be an equally dismal one after the market in late afternoon trade reacted to the imposition of tariffs by China on the US goods. 

The Nifty ended the day with a heavy loss of 116.60 points or 1.14 per cent. The nominal damage, which Wednesday’s session did was that the Nifty ended below the 200-DMA, which stands at 10,188.

Given the large number of shorts that are created, we expect a positive start to the trade on Thursday. However, there are chances that the Nifty may once again test the 200-DMA and consolidate around those levels.

Thursday will see the level of 10,190 and 10,245 as the immediate resistance area for the market. Supports came in at 10,080 and 10,040 zones.

The Relative Strength Index (RSI) on the daily chart is 42.7459, and it remains neutral showing no divergence against the price. The Daily MACD still remains bullish as it trades above its signal line. A big black body that emerged on candle reinforces the credibility of the resistance area at the place where it occurred.

The pattern analysis shows that the market has suffered a minor breach, as it ended below 200-DMA. Even if it shows a likely positive start given the large amount of short positions, the likely resistance that it can face at 200-DMA cannot be taken lightly.

Overall, it is evident that large number of shorts was added to the system in the previous session.

Further taking into account that the reaction to global trade war is likely to be short-lived, we may see the market attempting to recover some of its losses it suffered on Wednesday.

However, with the fact that the Nifty has ended below 200-DMA, theoretically speaking, this level may act as resistance while it attempts to pullback.

We advise against creating aggressive positions and also against creating fresh shorts. While preserving cash, cautious outlook is advised for the day.