Trade setup: Nifty may look up, but key hurdle at 11,300-11,350


Nifty witnessed sharp volatility on Friday after struggling to cross the resistance in the 11,300-11,350 zone and ended with a deep cut.

The market had seen a positive opening for the day and spent the first half of the session trading in the 11,300-11,350 zone. The afternoon session saw Nifty get stuck in a sharp corrective move. The index came off over 250 points from the high point of the day. Despite recovering some 60-odd points from the low point of the day, the headline index ended with a net loss of 122 points, or 1.08 per cent.

In our previous notes, we had raised concerns about Nifty’s inability to move past the 11,300-11,350 zone and the persistently falling volatility. Following Friday’s trade, volatility, represented by INDIA VIX, shot up 5.37 per cent to 21.6725.

Also, the session saw Nifty make a lower top within the rising channel once again, even as it tested the lower trend line to take support. The 11,100 would be an important level to watch in the coming days.

Given the steep drop witnessed until the end of the previous session, Nifty may see a mild technical pullback and see a modestly positive start to Monday’s session. The 11,225 and 11,280 levels will act as key resistance points, while supports will come in at 11,150 and 11,000 levels.

The Relative Strength Index, or RSI, on the daily chart stood at 57.57. It has formed a fresh 14-period low, which is a bearish signal. The RSI, however, is neutral and does not show any divergence against price. The daily MACD remains bearish and trades below the signal line.

A large engulfing bearish candle has appeared on the chart. This engulfing bearish pattern has added credibility and reinforced the importance of the 11,300-11,350 zone as a key resistance.

Milan-1

Over the next few days, Nifty will face stiff resistance near the aforesaid zone in any pullbacks attempt, as it has shifted its resistance points lower. Nifty’s behaviour against the 11,100 level needs to be watched critically. Any breach of this level will mean a breach of the rising channel on the downside and this may invite incremental weakness.

If the 11,100 level is defended, we may see the market trade in a rangebound way. A highly selective approach 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])





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