Trade setup: Nifty looks all set to see a bearish Failure Swing now

Friday’s session on Dalal Street was one of corrective move again, as Nifty consolidated in a defined range before ending with a modest loss. The market opened on a mildly negative note, but early morning trade saw Nifty recoup opening losses to trade flat near the previous close. However, the index saw a corrective move, which dragged it lower. Some recovery was seen in the second half of the session, but Nifty traded within a limited range. The headline index finally ended the session with a loss of 45.40 points, or 0.42 per cent.

In the past five sessions, Nifty faced resistance in the 10,800-10,880 zone, and at the 200-DMA which currently stands at 10,884. This zone will act as a stiff resistance point in the immediate short term. Unless Nifty moves past this zone and convincingly closes above the 200-DMA, it will remain vulnerable to selloffs at higher levels. Some signs of fatigue became visible, and this requires traders to guard profit vigilantly at higher levels.

Nifty is likely to see a tepid start to Monday’s session. The 10,850 and 10,880 levels will act as key resistance, while supports will come in at 10,700 and 10,610 levels.

The Relative Strength Index or RSI stood at 67.55. It remains neutral and does not show any divergence against price. Any move on the downside by the RSI will result in a bearish Failure Swing, which will occur when Nifty crosses below 70 level on RSI from an overbought zone and move up higher but does not take out the previous high, and then move down again.

ET CONTRIBUTORS

The daily MACD remains bullish, as it trades above the signal line. A Doji emerged on the candles, signifying an indecisive mindset among market participants devoid of any conviction.

Nifty currently trades below the 200-DMA, which stands at 10,884. This level is a major resistance point for the markets on a closing basis. Significant up-moves will not occur until the index penetrates the 200 DMA and closes above that level with volumes. Until this happens, we recommend traders to keep guarding profits vigilantly at higher levels. Gains and outperformance will remain limited to only a few sectors and stocks. A cautious approach with vigilant protection of profits at higher levels 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 [email protected])