Trade setup: Nifty resilient; don’t chase the rally blindly, use it to protect profit

The domestic equity market further narrowed its trading range on Friday, as the indices oscillated in a very limited range throughout the session to end with modest gains. Nifty opened on a mildly positive note and stayed in the positive territory for the entire session. However, without signalling any directional trend, the index kept on moving back and forth in a 60-point range. The high point of the session coincided with the level which was the confluence point of several major resistances. The market went on to end the session with a modest gain of 55.65 points, or 0.53 per cent.

The coming week will be very crucial for the market. On Friday, Nifty halted near the confluence point of two important pattern resistances. These points exist in form of a minor trend line within the rising channel while other resistance point exists in the form of a multi-month pattern support that Nifty breached on the downside. Volatility continued to diminish further and volatility index INDIA VIX declined by further 2.79 per cent to 25.7675.

Monday’s session is likely to see a quiet start. With the US markets shut on Friday, there will be no overnight cues to deal with. The 10,645 and 10,680 levels will act as overhead resistance while supports will come in lower at 10,565 and 10,470 levels. Any move on the downside is likely to widen the trading range.

The Relative Strength Index or RSI on the daily chart stood at 68.11. It showed a bearish divergence, which occurred as the price marked a fresh 14-period high, though the RSI did not do so. The daily MACD remained bullish as it traded above the signal line. A Doji occurred on the candles. Typically a Doji emerges when there is lack of directional consensus in a session.

Pattern analysis showed Nifty not only managed to stay in the rising channel that was formed after the rising wedge resolved in a continuation pattern, it has also managed to drag itself up to the upper trend line and nullify the lower top that it had formed within the channel. As of now, it is at the confluence of two important pattern resistance points.

Milan-July 5

All in all, Nifty is displaying exemplary resilience to any corrective move. All corrective moves have either stayed intraday or very shallow in nature. However, given the current technical setup, it would not be prudent to chase the rally blindly even if the same is fuelled by massive liquidity push. The current setup warrants that one chases the momentum with a lot of caution while adopting a stock-specific approach. Vigilant protection of profit is advised on every minor move on the upside.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

Source: ET Markets

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