Trade setup: Nifty may head either way from here; stay cautious

The domestic stock market continued to post modest gains after coming off the day’s high on Tuesday, as NSE Nifty faced stiff resistance at the 12,000 level. The index finally settled with a gain of 42.90 points or 0.36 per cent at 11,966.

The market is showing multiple signs pointing towards a decisive move on either side. There is a possibility of a corrective move with limited downside. The unusually wide Bollinger bands also are likely to prevent any significant sustainable runaway rally.

The fractured market breadth, the F&O data showing 12,000 as a stiff resistance, and Vix trading at a multi-month low are a few factors suggesting caution.


Wednesday’s session will continue to see 12,000 and 12,040 levels act as resistance points. Supports may come in lower at 11,880 and 11,810.

The Relative Strength Index (RSI) continued to remain neutral against the price and stood at 59.09. The daily MACD, though it remained bullish, appeared sharply narrowing its trajectory towards a negative crossover.

Another Spinning Top emerged on the candles. This is a potentially bearish formation, which has occurred for the fourth day in a row. A big black candle near the resistance point of 12,000, occurrence of a bullish harami during an uptrend, followed by two spinning tops do not paint a rosy picture. Such formations signal a potential loss of momentum.

The weekly options data continued to show the 12,000 strike price having the highest Call open interest built-up, followed by 12,150. This means that any upside, will remain capped.

The broader technical setup points towards a likely decisive move on either side, with higher possibilities of it happening on the downside.

The market breadth has remained negative, showing that fewer stocks have fuelled the rally, and broader participation is missing.

We again advise trades to approach the market with caution. The upmoves should be utilised to book profits and should not be blindly applied to making new purchases.

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