Trade Setup: Nifty closing in on a critical hurdle; stay defensive

The domestic equity market had a stronger-than-expected as Nifty went close to its crucial resistance area and ended the day with a decent gain. The market saw a positive start to the day; Nifty opened near the crucial 15,900-15,950 area and spent the entire day in a very limited range.

Although the index maintained its gains throughout the session, its trajectory remained sideways for the entire session. Nifty traded in a very narrow and defined 55-point range. However, it held on to the gains and closed with a net gain of 122.10 points (+0.77 per cent).

Tuesday’s session can turn out to be a crucial one. Nifty is very close to its very important and critical resistance area of 15,900-15,950. The opening of the market and Nifty’s behaviour against the 15,900-15,950 zone will be extremely important to decide the trend, not only for tomorrow, but also for the immediate short term.

Nifty is still below this zone, and will have to move past this resistance area convincingly to have any meaningful move on the upside. Unless this happens, it will continue in the current consolidation zone.

The 15,900 and 15,985 levels are likely to act as crucial resistance area in Tuesday’s session, while supports will come in at 15,800 and 15,725 levels.

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The Relative Strength Index (RSI) on the daily chart stood at 56.98; it has marked a new 14-period high, which is a bullish indication. The RSI is neutral and does not show any divergence against price. The daily MACD is bearish and stays below the signal line.

Pattern analysis continues to show Nifty is facing stiff resistance near the 15,900-15,950 zone. Over the past more than eight weeks, Nifty has been under a very defined and broad consolidation.

Though the market remains overextended on the long-term weekly and monthly charts, it is showing great strength and no inclination to correct. However, at the cost of being repetitive, we reiterate that any such potential breakout should not be taken for granted.

It would be prudent to patiently wait for the breakout to actually occur and a follow-up confirmation to occur. Until this happens, one should continue to approach the market in a defensive way with a stock-specific approach.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

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