Trade setup: Nifty’s short-term structure fractured, prone to selloff

Friday’s session on Dalal Street was affected by tensions in West Asia. Market technicals were weak, as the market was experiencing loss of momentum and the West Asian conflict led to a negative opening. Nifty remained in a falling trajectory throughout the session. It was in the last half-an-hour of trade that the index saw a mild pullback from lower levels. The index finally ended the day, losing 55.55 points or 0.45 per cent.

The technical setup is undoubtedly not as strong as it should be. But Friday’s selloff was a knee-jerk reaction to the events in West Asia.

This was evident from Nifty futures premium, which was shrinking during the session. The volatility, which was at one of its lowest levels during the recent months, also saw an increase, as reflected in the India VIX surging 10.49 per cent to 12.69. Nifty may see a mild technical pullback, but the upside is likely to remain capped.


With a stable opening expected on Monday, the 12,265 and 12,300 levels will act as strong overhead resistance points. Supports should come in at 12,190 and 12,150 levels.

The Relative Strength Index (RSI) on the daily chart stood at 57.43; it remained neutral and didn’t show any divergence against price. If seen beyond a 14-day period, the RSI continues to show a bearish divergence, as it has not marked higher highs along with Nifty. The daily MACD remains bearish and trades below the signal line.

Pattern analysis of the daily charts showed Nifty has broken above its double top resistance, which existed at 12,103. This breakout will remain in force as long as Nifty keeps its head above the 12,103 level. However, it is witnessing loss of momentum at current level. The continued bearish divergence with the lead indicators has also made the current technical setup slightly weak unless Nifty takes out the overhead resistance levels.

All in all, even if we discount the geopolitical tensions in West Asia, the technical setup looks fractured from the immediate short-term point of view. The loss of momentum at higher levels is evident, and the F&O data over the short term shows the 12,300 level is acting as a strong overhead resistance. Even if there is a mild pullbacks fueled by short covering, we would recommend staying cautious as Nifty remains vulnerable to selling pressure at higher levels.

(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)