Trade setup: Nifty likely to see small pullback; protect profit on every rise

The domestic equity market witnessed some consolidation on a closing basis on Tuesday, but the session remained weaker than the previous one. Following an overnight strong closing of the US markets, Asian bourses started on a firm note this morning. The Indian market saw a strong opening, but failed to capitalise on it.

The buoyant opening saw Nifty start just below the 10,400 mark. After an initial rangebound trade, the index came off over 100 points from the high point of the day. Some recovery was seen in the final hour of trade. The headline index finally ended the day on a flat note with a negligible loss of 10.30 points, or 0.10 per cent.

Over the past couple of days, Nifty has traded in a range. We expect the market to continue trading in a defined range before it takes a strong directional call. Nifty is likely to consolidate in a defined range with the 10,400-10,450 posing stiff overhead resistance. Volatility remained negligible; with volatility index INDIA VIX rising by a marginal 0.72 per cent to 29.1175. Unless the 10,450-10,450 zone is taken out, Nifty will continue to face selling pressure at higher levels and this will keep Nifty vulnerable near that zone.

The index is likely to see a stable start on Wednesday and the 10,350 and 10,415 levels are likely to act as immediate resistance, while supports will come in at 10,265 and 10,190 levels.

The Relative Strength Index or RSI on the daily chart stood at 60.88; it remains neutral and does not show any divergence against price. The daily MACD remains bearish as it trades below the signal line. A black body emerged on the candles. Apart from this, no other formation was observed on the candles.

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Capture

Pattern analysis showed Nifty is still in an upward rising channel. This channel was formed after the Rising Wedge resolved in a continuation pattern. However, Nifty appears weaker as it has formed a small lower top within the rising channel and is heading mildly lower in rangebound moves.

There is a possibility of a small pullback within a range on Wednesday. In case of such an up-move, it would be extremely important to guard profits at higher levels. Nifty has a relatively weak technical setup. No up-move will sustain at higher levels unless Nifty moves past the 10,500 mark convincingly. Until this happens, the market in general will remain vulnerable at higher levels. We strongly reiterate and recommend protecting profits vigilantly while keeping overall exposure modest. Avoid excessive exposure on either side.

(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])