Trade Setup: Nifty may stay in a broad consolidation range; volatility likely to inch higher

On expected lines, the domestic equity market went into a corrective consolidation zone on Friday.

After a flat opening, headline index Nifty spent the early morning in a capped range before slipping into the negative territory. It never showed any signs of recovery during the day. Following a corrective move, the index finally ended with a deep cut of 218.45 points or 1.50 per cent.

From a technical perspective, the previous session has confirmed the level of 14,650 as an intermediate top for the market. Going ahead from here, the zone of 14,650-14,750 will now act as a very stiff resistance; no sustainable up move shall occur unless the market moves past this level convincingly. Volatility increased as the India VIX inched higher by 1.09 per cent to 22.4225. We now have increased chances of the market taking a breather from the unabated up move and staying in a broad range.


Monday's session may have a mild technical pullback in the initial trade. However, the levels of 14,425 and 14,500 will act as resistance points, while support will come in at 14,300 and 14,230 levels.

The Relative Strength Index (RSI) on the daily chart is 58.69; it stays neutral and does now show any divergence against price, although it has made a new 14-period low which is bearish. Also, a classical bearish failure swing is observed. The RSI slipped below 70 from an overbought zone, pulled back, made a lower low and slipped again. The daily MACD is bearish and trades below its Signal Line.

There are possibilities that Nifty may stay in a broad consolidation range that it has formed for itself. Even if we see some technical pullback in the beginning of the session, there are chances that it gets sold into. Further, with Tuesday being a trading holiday on account of Republic Day, we might also see some caution weighing in towards the end of the session.

Volatility, too, is likely to inch higher over the coming days. With monthly derivatives expiry also lined up in the coming week, we will see some good amount of sector rotation also happening in the market. Broadly speaking, the market action is likely to remain highly stock specific. We recommend staying highly selective, while making fresh purchases and maintain a defensive and cautious outlook 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)