Trade Setup: Nifty showing signs of fatigue, avoid aggressive bets

On the day of weekly options expiry, the market played out much on the expected lines. In the previous technical note, we had mentioned that the market may continue to inch higher, but at the same time, may also face some selling pressure at higher levels.

The session saw Nifty opening with a modest gap-up. However, the market got stronger as the day progressed, and it also tested the 11,900 level. The last hour-and-a-half of the session saw some profit booking at higher levels. The index came off over 120 points from the high point, recovered a bit and finally ended the day with a net gain of 95.75 points or 0.82 per cent.

Despite the relentless up move, the market has now shown a clear sign of fatigue and reflects high possibilities of taking a breather in the near term. Nifty has now shifted its support zones higher at 11,400 and 11,450. With the new support zone, we expect the market to stay in a broad range now with limited upsides in the near term. The levels of 11,850-11,900 now makes up a strong resistance zone, marking the upper end of the newly-formed broad consolidation zone.

Friday's session is likely to see the levels of 11,860 and 11,910 acting as resistance points, while support will come in at 11,750 and 11,710 levels.

The Relative Strength Index (RSI) on the daily chart is 66.20; it stays neutral and does not show any divergence against price. The daily MACD is bullish and trades above the Signal Line.

A rising window emerged on the candles because of a gap on the upside. However, along with this formation, it has also formed a Doji which would take precedence in the present technical setup. Since the Doji has occurred following a steep uptrend, this signals a potential reversal, or at least a disruption, of the present trend.

Given the present technical setup, it would be prudent now to avoid any aggressive purchases. Any new purchases should be kept strictly limited to defensives. There may not be any major downside in the market, but some consolidation and profit taking moves from these levels cannot be ruled out. We recommend traders to approach the market with great caution. Excessive leveraged exposure should be avoided, and profits should be guarded vigilantly. 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)