Trade setup: High chances of market taking a breather; stay stock-specific

In a day of serious consolidation on Friday, the market spent the session in a limited and defined range before ending on a flat note. Nifty saw a lower opening, but soon crawled into the positive zone. The market extended its gains in the morning, but gave up those gains by late morning trade. Nifty spent the rest of the session heading nowhere and kept trading around its previous closing levels.

After a trendless session, the index ended flat with a negligible loss of 3.15 points, or 0.03 per cent.

Nifty has continued to stay within the broadening formation, and it has been hovering around the upper trend line. The upper trend line of the pattern is rising in nature, and therefore, it is preventing any sustainable breakout from the current levels.

Lack of internal strength continues to remain a concern. For any convincing directional up move to occur, Nifty’s behavior against the 12,400 level will be an important indicator to watch in the coming days.

Monday’s session is expected to have a quiet start. The 12,385 and 12,415 levels will act as strong overhead resistance while supports will come in at 12,320 and 12,275 levels. Any corrective move is likely to make the trading range wider than usual.

The Relative Strength Index (RSI) on the daily chart stands at 60.79; it stays neutral and does not show any divergence against price over a 14-day period. However, if the RSI is made subject to a pattern analysis beyond the 14-day period, it is seen within a formation, marking lower lows, which is translating into a bearish divergence. The daily MACD is bullish, as it continues to trade above its signal line.

Apart from a black body that occurred, no other important formations were observed on the candles.

Pattern analysis confirmed that Nifty continues to trade within a broadening formation. It continues to trace the upper trend-line. Given its rising nature, it is yet to achieve any clear breakout on the charts.

With no apparent breakout happening, the current technical setup points to higher chances of the market taking a breather. This can come either in the form of a mild corrective move or in the form of the market continuing to trade in a well-defined and capped range. In either of the scenarios, it is recommended to avoid aggressive purchases and continuing to adopt a highly stock-specific view on the market.

(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])