Trade setup: Nifty vulnerable at higher levels; tread with caution

In a disappointing session, the domestic stock market on Friday gave up all its gains with NSE Nifty coming off 95 points to end 30.40 points or 0.26 per cent lower at 11,552.50.

Though the market is slightly oversold on a couple of short-term indicators, all is not well with the present setup. The 50-stock pack has defended the 100-DMA, which is at 11,522 on a closing basis as of now.

The upmoves are coming in only because of short-covering as reflected by the fall in open interest, and the declines are accompanied by the fall in OI, which reflects long unwinding from higher levels. This doesn’t paint a rosy picture for the market.


Monday’s session may see a steady start given positive global markets. Some intermittent technical pullbacks are likely, and 11,590 and 11,630 levels will act as resistance. Supports may come in at 11,520 and 11,450.

The daily RSI (Relative strength index) stood at 40.41 and remained neutral, showing no divergence against the price. The daily MACD was bearish as it traded below its signal line.

The pattern analysis of the daily charts showed that though Nifty has held on to the 100-DMA, which is at 11,522, it is struggling with short-term loss of momentum.

The 20-DMA appears to be sharply moving lower and may cut 50-DMA from above, indicating short-term loss of momentum.

Given the mildly oversold nature of the market and if the environment remains positive globally, mild technical pullbacks cannot be ruled out. However, they will need to sustain at higher levels, which remains slightly challenging.

Nifty will have to defend 100-DMA on a closing basis, and if this level is taken out, then the market may invite more weakness.

We recommend traders to continue to stay light on positions and approach the market with caution.

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