Trade Setup: Expect Nifty to trade range-bound; avoid aggressive shorts

After a positive opening, headline index Nifty got stronger in the first hour of the trade and marked its intraday high point. However, gradually, by afternoon, it slipped in the negative territory while paring its opening gain. It spent the rest of the session trading within a very defined and narrow range and did not make any directional headway. The headline index ended with a modest loss of 56.40 points or 0.35 per cent.

The new week may well start on a quiet note. We are likely to see Nifty trading in a range-bound fashion and consolidate. As mentioned before in earlier notes, following a breakout, Nifty has pulled its support levels higher at 16,000. As long as the index stays above this point, it will remain under a broad consolidation. The market is showing exemplary strength with no signs of a correction. Volatility continued sliding lower as the India VIX declined by 2.06 per cent to 12.6075.

Monday’s session is likely to have a quiet start to the day. We will see the market consolidating with the levels of 16,280 and 16,350 acting as resistance points, while support will come in at 16,180 and 16,100 levels.

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The Relative Strength Index (RSI) on the daily chart was neutral at 66.96 and did not show any divergence against price. The daily MACD was bullish and remained above the Signal Line. Apart from a black body that emerged on the candles, no other formations were noticed on the charts.
While the market, in general, consolidates, the broader market, including midcaps, may see highly selective moves. As the mid- and- smallcap indexes had run-up hard, the broader market may see more pain on a relative basis if the market chooses to consolidate within a broad range again.

Given the present technical setup, we strongly suggest avoiding aggressive shorts. While on the long side, we recommend continuing to stay highly selective. Fresh purchases may be kept in defensives like IT and FMCG. Apart from this, more focus should be on largecaps and on individual stocks with good technical setups. Overall, a cautiously positive approach is advised for the day.

(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)