Trade Setup: No sign of major weakness, but it looks like Nifty is on a sticky wicket

After staying relatively resilient at the higher end of the trading range, the domestic equity market saw some correction at the start of the expiry week. The market opened on a negative note and stayed in the negative territory throughout the day.

After testing the morning lows, Nifty defended those levels and did not go lower. After the low point marked in the early trade, Nifty pulled back and traded sideways in a defined range. The headline index ended the day with a net loss of 62.35 points, or 0.56 per cent.

There are possibilities that we may see mild weakness in the market in the immediate short term. This was the fourth day in a row that Nifty marked similar highs in the 11,225-11,238 range. After staying in a near-sideways move over the past four days, some modest weakness cannot be ruled out unless Nifty moves past the 11,250 level.


Volatility, too increased, as INDIA VIX moved higher by 1.97 per cent to 25.0175.

Tuesday’s session is likely to see a soft start and the 11,195 and 11,235 levels are likely to act as immediate overhead resistance, while supports will come in lower at 11,065 and 11,000 levels. Any corrective move will make the trading range wider than usual.

On the daily chart, the Relative Strength Index or RSI stood at 68.26. It remains neutral and does not show any divergence against the price. The RSI has crossed below the 70 mark from the overbought zone, and this is a bearish signal. The daily MACD is still bullish, as it trades above the signal line. A black body emerged; but no other formations are present on the candles.

Pattern analysis showed Nifty is near the upper edge of the Rising Channel in which it has been trading at this point of time. In this process, the index is also trading above all the key moving averages.

All in all, even if Nifty stays in the upward rising channel and maintains its short-term trend, a mild corrective action or ranged consolidation cannot be ruled out. However, with no sign of any major weakness, we recommend not shorting aggressively in this market as a lot of discomfort is visible at lower levels.

The best possible way to tackle such a technical setup is to keep following the micro trend on both upside and downside. While doing so, protect profits vigilantly at every level by using strict trailing stop losses.

(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)