Trade Setup: Nifty may trade in a defined range; avoid shorts

While continuing to trade on the expected lines, the Indian equity market continued to correct modestly and end the day on a negative note. Headline index Nifty opened on a positive note, and after trading positively in the opening minutes of the session, it soon slipped into the red. However, the market rebounded to trade in the green once again; it stayed in a limited range though and did not take any directional bias throughout the day. While no clear trend was established during the day, Nifty closed with a modest loss of 43.90 points or 0.25 per cent.

The market remained trapped in a corrective mode; this is more of a narrow congestion zone created within a broad consolidation range. On the higher side, there is 100-DMA level of 17,648 followed by the 20-DMA at 17,737. On the lower side, the 50-DMA at 17,438 stood as a more important and immediate support for the market on a closing basis. The index will not take any sustainable directional bias as long as it is between 17,400-17,700; it will continue to oscillate in a defined and narrow range.

Monday’s session is likely to have a quiet start to the day. The levels of 17,580 and 17,630 will act as potential resistance points, while support will come in at 17,410 and 17,350.

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The Relative Strength Index (RSI) stood at 48.51; it remained neutral and did not show any divergence against price. The daily MACD was bearish and below the signal line. A black body emerged on the candles; apart from this no other formations were seen.

The pattern analysis shows that the index resisted to the extended trend line which happens to be the neckline resistance of the bearish head and shoulders pattern that the index had formed earlier. On the lower side, it has taken support on the falling trend line pattern support as evident from the chart.

The trend for Monday is likely to stay on similar lines like the previous session. We may find the market trading in a defined range. It would be crucial for the index to defend the 50-DMA on a closing basis, failing which we may see some more weakness creeping into the market. NIFTY PCR across all expiries stood at 0.90 and looks evenly placed.

It is recommended to continue avoiding shorts and use opportunities to make quality purchases. Pockets like select banking, financial, auto, oil & gas, and PSE may relatively outperform the broader market.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at [email protected])

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