Trade setup: Market action to remain stock & sector specific

In a wide-ranging and volatile session, Nifty hung precariously near its crucial levels and ended the session on a modestly negative note. The market had seen a buoyant start and stayed strong for the entire first half of the session. As mentioned in the previous technical note, Nifty’s staying above the 11,430 level was crucial.

However, at the high point, Nifty faced a severe correction, and came off nearly 180 points from the high of the day. After a minor pullback from the lows, the index ended with a net loss of 24.40 points, or 0.21 per cent.

Nifty is now placed at a point where the risk-reward is just not favourable to take any aggressive directional view. Nifty has so far kept its head above the 11,430 level. Tuesday’s opening and the trajectory that the index takes would be extremely crucial. The RS Line of Nifty against the broader Nifty500 Index has plunged to a new low; this shows that the frontline index will continue to underperform the broader market. Volatility increased a bit with India VIX rising 2.31 per cent to 21.1900.


Tuesday’s session might see a jittery start. The 11,490 and 11,550 levels will act as key resistance points, while supports will come in at 11,400 and 11,310 levels.

The Relative Strength Index, or RSI, on the daily chart stood at 55.13. It remains neutral and does not show any divergence against the price. The daily MACD remains bearish, as it trades below the signal line. A Bearish Engulfing Candle has occurred. This has once again reinforced the credibility of the overhead resistance.

Pattern analysis suggests Nifty has slipped slightly below its short-term 20-DMA. Any slip below the 11,430 level would mean a failed attempt to move past this Double Top resistance point.

Overall, the market is likely to remain jittery at all levels unless the 11,430-11,500 zone is taken out convincingly. Until this happens, the market, in general, will continue to face resistance at higher levels. As mentioned in the previous note, market action will continue to be highly stock and sector specific. We reiterate avoiding heavy index positions and guarding profits at each level on either side. The risk-reward would be more favourable if highly select set of defensive stocks are preferred over high-beta stocks. A cautious approach is advised or 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)