Trade setup: Stay cautious till Nifty crosses past 11,430 level

Gains fizzled out in the last hour-and-a-half of Friday’s session, as Nifty not only turned downward, but also saw wide swings on either side. The market showed a strong and positive start to the session. The beginning was better than expected. The good thing was, Nifty maintained those opening gains through most part of the session. It was the last hour-and-a-half that saw the entire day’s hard work wiped out.

Nifty not only gave up all its gains, but also slipped into the negative territory. The index came off over 100 points from the high point. However, some recovery was seen, and the headline index ended the day with a nominal loss of 11.15 points, or 0.10 per cent.

From a technical perspective, the previous one was one of the important sessions. Nifty formed an Engulfing Bearish Candle following a Spinning Top the day before. This highlighted Nifty’s discomfort at higher levels and the lack of conviction that it needs to confirm the Double Top breakout above the 11,430 level. Given the show of the previous session, the 11,430 level still remains an important mark to watch out, and Nifty will have to keep its head above this level to avoid incremental weakness.

Volatility declined despite wide moves as the India VIX came off 0.27 per cent to 20.0450 level. Monday’s opening was somewhat jittery and soft in nature. The 11,545 and 11,590 levels will now act as key resistance points, while supports will come in at 11,430 and 11,390 levels.

The Relative Strength Index, or RSI, on the daily chart stood at 56.13; it remains neutral and does not show any divergence against price. The daily MACD remains bearish and trades below the signal line.

Pattern analysis on the daily chart showed Nifty traded outside the Large Wedge formation. However, it stays above the Double Top resistance area at 11,430; and this level remains important as Nifty needs to move on with conviction to confirm a breakout. Currently, the index is seen moving in a wide range, but lacking the conviction it needs for move up further.

All in all, if we look at the immediate short-term technical setup, Nifty is likely to face resistance at higher levels. We recommend staying highly stock specific in approach. There are mild chances of the US dollar pulling pack slightly, as mild technical pullback in the greenback is imminent. This may cause some volatile move or mild disruption in the markets. Apart from this, financial stocks are showing very weak relative strength and may underperform the broader market. We recommend a cautious approach.

(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])