Trade setup: Nifty may consolidate at higher levels; downside looks limited

The domestic stock market rose for a third straight session on Tuesday to hit a fresh lifetime high. After opening on a negative note, the benchmark stock indices traded in a capped range for most part of the session. Stocks recovered in the last hour, as NSE Nifty finally ended with a gain of 32.75 points or 0.27 per cent at 12,362.30.

The headline index remained in uncharted territory, and it has been moving higher even despite diminishing strength and momentum.

The stock market may still continue to make incremental highs, but is likely to stay within the broadening formation. There are greater chances of stocks consolidating at higher levels. Any significant downside, though, is less likely. RRG Lines against the broader Nifty 500 index showed the loss of relative momentum on daily and weekly charts.


Wednesday’s session is again likely to see a tepid start, with 12,390 and 12,420 levels acting as resistance. Support may come in at 12,310 and 12,250. Any correction will make trading range broader than usual.

The Relative Strength Index (RSI) on the daily chart stood at 61.73. A clear bearish divergence was observed on RSI, as it did not mark a fresh 14-period high along with Nifty.

The daily MACD showed a positive crossover and was bullish, while trading above its signal line. A small white body emerged on the candles.

As per pattern analysis, Nifty is within the broadening formation. The index may inch higher, but may resist the upper trend
line of the broadening formation, which is rising in nature.

All in all, the market isn’t showing any signs of a corrective move. However, it is prudent not to ignore the present technical setup, which is overstretched on the charts, with lead indicators showing a bearish divergence.

On Wednesday, if Nifty moves higher, then traders may follow the momentum, but any significant exposure should be avoided. Keep a trailing stop-loss and protect profit at higher levels instead of blindly chasing the rally. A cautious outlook 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)