Trade Setup: 14,653 intermediate top for Nifty; mild technical pullback possible

The domestic equity market continued to correct for the second day in a row on Monday as it ended yet another day with losses. Financial stocks remained particularly weak along with midcaps.

Headline index Nifty had a modestly negative start to the day but soon widened its losses in the morning trade. As it continued to trade with losses in sideways trajectory, the index saw a bout of recovery which took it very near to its previous close. However, this recovery did not sustain as it got sold into. Nifty then went on to make a fresh low for the day in late afternoon trade and ended with a loss of 152.40 points, or 1.06 per cent.

The past two days saw the index reverting back to its mean. The short-term 20-DMA for Nifty stood at 14,091. Even if Nifty extends its correction to this point, it will not structurally violate any key levels. Options data also validate this reading as the highest Call OI concentration stood firm at 14,000. Volatility continued to rise as India VIX climbed by 1.60 per cent to 24.3950. The level of 14,653 is now confirmed as an intermediate top. Nifty has expectedly pushed itself into a broad-ranged consolidation.


Tuesday's session is likely to see the levels of 14,350 and 14,425 act as immediate resistance points, while support will come in at 14,205 and 14,150 levels.

The daily RSI stood at 62.56; it is neutral and does not show any divergence against price. The daily MACD displayed a negative crossover and trades below its Signal Line. A black body emerged on the charts, pointing at directional consensus of market participants during the day.

All and all, the market is still away even from its short-term 20-DMA level which stood at 14,091. This speaks a lot of the extent by which the market had run up much ahead of its curve. There are possibilities that Nifty may continue to extend its corrective move. However, that being said, some amount of mild technical pullback cannot be ruled out.

Even if the market shows some technical pullback, we recommend not letting the guards down and continue approaching the market in a stock-specific way. Midcaps are correcting more as they had run up too hard. The relative strength of defensives like consumption, pharma, etc is sharply improving against the broader market. While keeping exposures modest, a cautious approach is advised for the day.

(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)