Trade Setup: 12,960-13,000 zone crucial for Nifty; ripe case for consolidation

The market staged a reluctant up move again on Friday as it saw a surge on the back of short covering. Nifty had a positive start to the day but soon pared the opening gains to trade flat. Most part of the session was spent within a capped range when the index oscillated in a limited band. The second half of the session saw a spurt which took Nifty past the morning high point. After coming off a bit from there, the headline index finally closed with a net gain of 87.35 points or 0.68 per cent.

Volatility remained unchanged as India VIX rose just marginally by 0.24 per cent to 19.6175. The spurt in the previous session was evidently caused by short covering as reflected in the reduction of net cumulative OI in Nifty Futures. With the market breadth getting slightly weak, unless Nifty takes out the 12,960-13,000 zone, it may be showing some signs of distribution at current levels. Nifty's behavior against this zone will be crucial going ahead.

Monday's session is likely to see a soft start to the day as we enter the expiry week for the monthly derivative series. The level of 12,900 and 12,965 will act as resistance points, while support will come in at 12,750 and 12,635 levels.
The Relative Strength Index (RSI) on the daily chart is 71.38; it has got mildly overbought again. It remains neutral and does not show any divergence against price. The daily MACD is bullish as it stays above the Signal Line.


A candle with a long lower shadow occurred on the charts. It closely resembles a hanging man formation, except that it has a small upper shadow which is usually absent in hammers and hanging man candles. However, in either case, it has the potential to stall a rally but a confirmation will be required on the next trading bar.

Nifty has completed the classical measurement implications that arise after a breakout above the 12,000 levels. Its consolidation near the 13,000-mark, and the present technical setup, makes it a ripe case for some consolidation taking place at current levels. With Nifty continuing to stay vulnerable to sharp profit taking bouts, we recommend continuing to approach the markets with a cautious view and focus more on protecting profits at current levels than chasing the rally as long as the index is below the 12,960-13,000 zone.

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