Trade setup: Nifty50 enters a key profit-taking zone, tread carefully

The domestic equity market continued to advance helping Nifty to move higher and end with gains even as continued to stay in the Rising Wedge formation. Nifty saw a flat start, but went to test the 9,300 mark by afternoon gradually.

At one point, the Nifty had given up much of the gains only to recoup them later. Bank Nifty outperformed Nifty, and the bulk of the gains in the first line index came from financial stocks.

Weekly options expiry also dominated the proceedings. Nifty finally closed with a net advance of 126 points, or 1.38 per cent. Nifty is currently trading in the Rising Wedge formation, and it is moving towards the upper trend line of this area pattern, which is likely to trigger some resistance. Any move higher from this point is expected to invite some profit-taking.


Volatility index INDIA VIX declined another 8.39% to 39.2300. Each move higher from the current level now will need to be dealt with a high degree of caution.

Nifty is likely to see the 9,350 and 9,385 acting as key resistance on Friday, while supports will come in at 9,170 and 9,100 levels. Any corrective move is widen the trading range.

Price oscillator indicator PPO remains positive on the daily charts. Relative Strength Index (RSI) stood at 51.34. It has made a fresh 14-period high, which is a bullish signal. The RSI is neutral and does not show any divergence against the price. The daily MACD remains bullish, and it trades above the signal line.

Pattern analysis continues to show Nifty is trading in the Rising Wedge formation. Such area patterns are often formed after sharp bear market rallies and are supposed to be dealt with cautiously.

Given the present technical setup, we recommend utilising any up-move, if it occurs, to protect profits on existing positions. Instead of chasing the up-move with fresh purchases, it would be prudent if we protect profits vigilantly. The main reason behind this approach is that the higher the market goes, the closer it will get to the upper trend line resistance to the wedge. This is likely to trigger profit taking at higher levels. While guarding profit at current and higher levels, 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)