Trade setup: Nifty may see a mild pullback, but is not out of the woods

In the previous market note it was mentioned that the domestic stock market was vulnerable at higher levels, as NSE Nifty had failed to confirm a breakout. On the expected lines, the index on Thursday ended with a deep cut of 177.90 points or 1.48 per cent with no sectoral or broader index in the green.

Thursday’s session was technically significant as the 12,000-12,040 zone has again reinforced itself as an intermediate top.

We expect a flat start to the trade on Friday. Some intermittent technical pullbacks may be seen, but the overall bias remains bearish. There is probability that Nifty will test the 11,760-11,740 range over the coming sessions.


Friday’s session may see 11,890 and 11,935 levels act as immediate resistance. Supports are likely to come in at 11,760 and 11,710.

The Relative Strength Index (RSI) on the daily chart stood at 54.83 and it remained neutral, showing no divergence against the price. The daily MACD continued to stay bullish while trading above its signal line.

A large black body emerged on the candles. Such a formation is significant as it has occurred in the 12,000-12,040 range, which is a key resistance area. The occurrence of such a large candle near this zone has reinforced the credibility of the resistance area.

Any technical pullbacks on Friday should not be seen as a surprise. However, if there are upmoves, Nifty will remain prone to profit booking at higher levels.

We recommend traders to avoid using dips to make purchases. If the present resistance zone is not taken out in the immediate short term, it can change the technical texture of the market.

We suggest to remain highly selective in picking stocks and adopt a highly cautious view.

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