Trade setup: Trade setup: Nifty hits the 200-DMA wall; guard profit, stay stock specific


In the previous note, we had categorically mentioned the 200-DMA as one of the major resistance for Nifty50. In line with that analysis, this level posed a stiff resistance once again for the Index. The market saw a gapup start, which ensured that Nifty opens exactly at the resistance point. After a strong start, the market spent the rest of the session paring all the opening gains.

While the market failed to capitalise on the strong opening, Nifty not only gave up all the gains, but also slipped into the negative territory briefly. After a mild recovery from the low point, the headline index managed to end the day with a gain of 34.65 points, or 0.32 per cent.

The market has continued to show multiple signs of fatigue at current level. Volatility rose modestly as India VIX, which is at one of its lowest levels in recent times, rose 1.24 per cent. It was for the sixth day that Nifty was not able to penetrate the 200-DMA, which currently stands at 10,885. The other signs that point towards diminishing momentum makes the 10,885 level a major near-term resistance for Nifty50.

Tuesdayโ€™s session is likely to see a soft start. The 10,850 and 10,890 levels will act as overhead resistance points, while supports will come in much lower at 10,710 and 10,665 levels. Any corrective move is set to make the trading range much wider than usual.

I15

The Relative Strength Index or RSI on the daily chart stood at 68.38. It remains neutral and does not show any divergence against price. The daily MACD remains bullish as it trades above the signal line. However, the slope of the histogram suggests diminishing momentum in the up-move.

A Black Body emerged on the candles. Apart from this, no other formations were noticed.

Pattern analysis showed Nifty is facing strong resistance near the 200-DMA, which now stands at 10,885. No major up-move is likely unless Nifty moves past this level convincingly on a closing basis.

The decline from the opening highs in the previous session has come with a decline in net open interest. This shows unwinding at higher levels. As long as Nifty rules below the 200-DMA on a closing basis, the market in general will stay vulnerable at higher levels. We reiterate our view of keeping fresh purchases highly stock-specific. Guarding profits vigilantly at higher levels will be a more prudent method of approaching the market now given the current technical setup.

(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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