Trade Setup: Expect a quiet start for Nifty on Monday; 11,800 and 11,865 immediate resistance points

In the previous technical note, we had mentioned that some technical pullback may occur as Nifty had witnessed an unreasonably near-vertical decline. While continuing to trade precisely on the expected lines, the Indian equity market threw some technical pullback to end the day with gains.

The market saw a positive opening, but soon pared the gains to slip into the negative territory for a brief period as it marked the low point of the day. The index soon recovered to crawl back inside the positive zone. The rest of the session was spent by the market oscillating within a defined range. The headline index went on to end the day with a net gain of 82.10 points or 0.70 per cent.

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It is important to note that although the market gave some technical pullback, the upsides have remained measured and limited. This also has been on the anticipated lines. The market is in a broad consolidation range; any upsides will stay limited in its extent and we will continue seeing profit taking bouts at higher levels.

While Nifty may stay in a wide consolidation range for some time, the moves on either side will remain limited. The volatility cooled down a bit with India VIX coming off by 1.87 per cent to 21.6450.

Expect a quiet start to the day and the week on Monday. The levels of 11,800 and 11,865 will act as immediate resistance points, while support would come in at 11,700 and 11,640 levels.

The RSI on the daily chart is 57.84; it stays neutral and does not show any divergence against price. The daily MACD is bullish and it trades above the Signal Line. A small white body emerged on the candle resembling a spinning top. It does not denote anything significant except for a session that saw limited moves with a bit of indecisiveness among market participants.

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From the pattern analysis point of view, the immediate support on a closing basis for the market is at the 50-DMA which presently stands at 11,443. It is very much evident that for the immediate short term, the index has been pushed in a broad consolidation range between 12,000 and the 50-DMA.

Overall, we suggest traders to continue to approach the market with a cautious approach. Sector rotation is very much visible in the markets and the coming days are likely to stay highly sector and stock specific. The up moves should not be chased as the pullback that was seen on Friday has been on the basis of short covering, as evident from the reduction of Open Interest that has come with the rise.

It is important that the short covering is replaced with fresh buying before we go all out chasing the up move. While staying stock specific in making purchases, profit should be guarded with every move that is there on the upside.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])



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