Trade Setup: Nifty may weaken some more; 11,430 level is key

Friday’s session on Dalal Street saw stock indices resume their downtrend along with global peers, as they opened with a gap-down and ended with deep cuts. The market saw a gap-down start but held the opening lows. The index saw some recovery, but then gave up those as it encountered renewed selling pressure and went on to breach the morning lows. Nifty50 didn’t make any attempt to recover after that and ended with a cut of 193 points, or 1.68 per cent.
There may be some mild incremental weakness now as we step into a new session. US markets ended negative on Friday. However, they closed significantly off their lows. This means we can expect the domestic market to attempt and gain some stability and try a mild technical pullback. However, Nifty has failed to break out of the double top formation, which it tried when it took out the 11,430 level. This means the 11,430-11,500 zone remains a crucial and resistance. Volatility increased as the India VIX surged 8.05 per cent to 22.1525 level.

The 11,385 and 11,430 levels are likely to act as key resistance points in Monday’s session, while supports will come in at 11,285 and 112,00 levels. The Relative Strength Index, or RSI, stands at 50.90 on the daily chart; it has marked a new 14-period low, which is a bearish signal. The RSI remains neutral over a 14-day period. The daily MACD remains bearish, as it remains below the signal line. A Falling Window occurred on the candles. Such a candle is formed because of a gap-down start, which usually means continued downside momentum.

However, this would require a conformation in next trading session.

Pattern analysis showed two important developments. First, Nifty has fallen from the Rising Channel in which it was trading since the March lows. Secondly, it has slipped below the Double Top resistance at 11,430, the level which it had taken while it had crossed Double Top.

All in all, we might see mild downsides, but at the same time, Nifty may also attempt a technical pullback. We expect the 11,430 level to remains important in the immediate term. It would be crucial for Nifty to move past the 11,430 mark as soon as it can to avoid incremental weakness. It is also expected that volatility will remain at elevated levels over the immediate short term.

We recommend staying light on the overall positions and avoiding aggressive shorts or longs at any level. A broad rangebound consolidation is expected over the coming days.

Credit: Stocks-Markets-Economic Times

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