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Friday Trade Setup: NIFTY Likely To Consolidate In A Defined Range; Fresh Up Moves Only Above This Level

In what can be called an onset of classical consolidation, the NIFTY took some breather again and spent the day in a defined range on the expected lines. The markets opened with a modest gap up and marked the intraday high point in the early minutes of the trade. The NIFTY, after that, spent the day in a measured way and under a gradual decline. In the last hour of the trade, it slipped in the red and formed its intraday low. Following a modest recovery, the headline Index finally ended the day paring all its opening gains with a mild loss of 8.90 points (-0.06%).

The previous session stayed thoroughly governed by weekly options expiry. The 14200 level saw heavy call writing throughout the day; this ensured NIFTY does not settle above this point. Given the two near-similar high points of the day, the level of 14260 is the level that the NIFTY will have to move past convincingly for any resumption of the up move. Until this happens, the markets will continue taking some breather and will consolidate in a broad range. The volatility cooled off a bit with INDIAVIX coming off 1.81% to 20.6150.

Friday will see the levels of 14230 and 14265 acting as resistance points. The supports come in at 14080 and 14000 levels.

The daily RSI stands at 72.94; it stays mildly overbought but also remains neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above the signal line. However, the histogram appears flattened and there is total absence or signs of any momentum on the upside.  

A mildly engulfing bearish candle has occurred on the charts. This may not be a big sign of worry; however, it certainly shows some exhaustion of markets at current levels and some increased possibilities of the markets taking some breather.

The undercurrent stays strong and buoyant. However, if the markets undergo any consolidation in a ranged manner, it will just make the present up move seen over the past days healthier and more sustainable. Regardless of the strong undercurrent and risk-on setup in place, fresh upsides will occur only after NIFTY moves past 14260 convincingly.

Until this happens, the texture of the markets will continue to stay stock specific. We have the RS Line of the broader NIFTY500 Index rising against the frontline NIFTY and this will see the broader markets performing better than the frontline over the coming weeks. We reiterate staying highly selective, avoid shorts, follow the trend and keep protecting profits on the either side.

This was first published by The Economic Times.

Milan Vaishnav, CMT, MSTA
Consulting Technical   Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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