Trade setup: Market vulnerable to selloff, refrain from aggressive long positions
The 11,950 and 12,000 levels will act as key resistance. Supports are at 11,855 and 11,800.
Nifty saw a negative start to the session, but soon pulled itself into the positive area. However, the index failed to trade with gains and slipped into the red again. For the entire session after that, Nifty traded in the negative territory. The last half an hour of trade saw a sharp pullback, mainly led by a push infused by short-covering from
lower levels. Nifty managed to remain in the positive territory and ended with minor gains of 5.30 points, or 0.04 per cent.
Even as the market escaped any corrective move on Monday, the loss of momentum remains quite visible on the short-term charts. The market will open after a gap following a holiday on Tuesday. While it may adjust to the global trade setup, any upmove will continue to face strong resistance near the 12,000 mark.
The opening levels on Wednesday, and the trajectory that Nifty forms after that will be crucial to watch as the market remains vulnerable at higher levels.
Nifty is likely to see a stable start to the day. The 11,950 and 12,000 levels will act as key resistance, while supports may come in at 11,855 and 11,800.
The RSI on the daily chart stood at 64.83; it remains neutral and does not show any divergence against price over a 14-day period. Though the daily MACD remains bullish and trades above the signal line, it is seen narrowing its slope and moving towards a negative crossover. No significant formations were observed on the candles.
Going by pattern analysis, it is evident that the rally in the market has stalled near the 12,000-12,050 area. This zone remains an immediate top for Nifty with no runaway rally expected unless these levels are taken out.
Even if we see some positive trend during the day, we recommend refraining from creating any aggressive longs unless Nifty moves past and ends above 12,000-12,050 zone. Unless this happens, the market will continue to remain vulnerable to selloff from higher levels.
Also, any such short covering-led bounce may end up being deceptive at higher levels. We recommend keeping a cautious view of the market at current levels.
(Milan Vaishnav, CMT, MSTA, is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)