Trade Setup: 13,100-13,770 broad trading range for Nifty; avoid shorts

Following a very steep and violent decline in the previous session, the domestic equity benchmark index Nifty showed some pullback on the anticipated lines on Tuesday.

Following a shaky start, the first half of the session remained very volatile as the index kept oscillating within a 150-point range. However, the second half of the session saw the market staging a remarkable recovery. Nifty not only recovered over 150 points from its low, but also went on to add another 100 points in the positive. It not only marked the high point of the day in the final hour of the trade, but also maintained those levels. The headline index finally ended with a net gain of 137.90 points or 1.03 per cent.

From a technical perspective, the insanely stretched market has just reverted to its mean. It has formed a broad consolidation range at 13,100-13,770. Tactically speaking, it has also turned defensive with improved relative strength of sectors like pharma, FMCG, consumption and IT. Volatility, which had spiked up sharply yesterday, cooled off a bit with India VIX coming off by 5.20 per cent to 21.9850.


If there are no overnight negative cues to deal with, the market may extend its up move mildly in the initial trade. The levels of 13,535 and 13,590 will act as resistance points, while support will come in at 13,380 and 13,275 levels.

The Relative Strength Index (RSI) stands at 60.51; it stays neutral and does not show any divergence against price. The daily MACD is bearish and remains below its Signal Line. A candle with a slightly long lower shadow occurred on the charts. It is less relevant in the present technical setup as it occurred within an area formation and is more of an inside bar than anything else.

The pattern analysis shows the creation of a broad trading range between 13,100-13,770; this range will stay in force unless violated on the either side.

The previous session also saw a tactical shift in the market. The preference of the market participants is now clearly shifting to traditionally defensive stocks. This is reflected in these stocks and sectors showing sharp improvement in their relative performance against the broader market.

Going ahead from here, staying put with defensive bets will continue to offer much better risk-reward setup. With the market still within a broad range as mentioned, shorts should be avoided. While curtailing overall exposures, we reiterate approaching the market cautiously.

(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)