Trade Setup: Nifty may see stable start, but every cue is calling for caution

It would be crucially important for Nifty to keep above the 11,430 level as any slip below 11,400 would mean a failure to take out the double top resistance and slip below that point.

In listless trade, the domestic stock market spent whole of Friday’s session moving in a narrow, capped range before ending on a flat note. The market saw a modestly positive start to the session and then pared those gains in early trade. After that, the headline index, and the markets in general, went nowhere. Nifty didn’t show the directional bias for the entire session and kept on going in and out of the positive territory. The index finally ended the day with a net gain of 15.20 points, or 0.13 per cent.

Nifty is currently placed a notch above the double top resistance point at 11,430 level. With a closing above this level, the index has attempted to take out this level again. While this attempt remains in force, it would be crucially important for the index to keep its head above the 11,430 level as any slip below 11,400 level would mean a failure to take out the double top resistance and slip below that point.

Volatility remained low; and INDIA VIX declined 2.59 pe cent to 20.7125. It would be crucial to watch the index’s behaviour vis-à-vis the 11,430 level not only on Monday, but for the entire week. With the Dow and S&P500 closing positive on Friday, we expect Nifty to see a stable start to the coming week. Nifty will face resistance at 11,510 and 11,570 levels, while supports will come in at 11,405 and 11,360 levels.

The Relative Strength Index, or RSI, on the daily chart stood at 56.45. It remains neutral and does not show any divergence against the price. The daily MACD remains bearish, as it is below the signal line. Apart from a small white body that appeared, no important formations were noticed on the candles.

Pattern analysis suggests Nifty has fallen out of a large Rising Wedge, which appears likely an upward rising channel. The channel has been narrowing sharply and this makes it a wedge. On the positive side, Nifty has again attempted to take out the Double Top resistance point that exists at 11,430 level.

All in all, the F&O figures suggest some positive move in the market in the initial hours. As we progress, the weekly levels will take over the larger technical structure. F&O figures suggest Nifty futures have added over 7.02 lakh contracts, or 7.03% in the OI. This means in the event of any corrective decline, the participants may face discomfort at lower levels. However, we will definitely need to remains cautious if Nifty slips below 11,400 level and stays below it. We recommend shifting focus to defensives like IT, pharma and consumption stocks for a safer approach to 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 milan.vaishnav@equityresearch.asia)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)