Trade Setup: Nifty50 showing signs of fatigue, faces resistance at 15,800-15,830 levels

The Nifty50 index marked a fresh incremental high, of 15,778.80, on Tuesday, but the market largely consolidated and ended the day with a nominal loss. After opening on a modestly positive note, the index marked its day’s high in early deals but soon slipped into negative territory. It also formed its intraday low in the morning session. The entire session after that was spent in a very limited and narrow range. Nifty50 saw itself gradually recover from that low point. At one point in time, the index recovered all of its day’s losses. It finally ended with a small loss of 11.55 points (0.07 per cent).

Nifty50 has been marking incremental highs. However, over the past 2-3 sessions, it is lacking the strength that it had earlier, and is showing some signs of fatigue. The levels of 15,800 and 16,000 are continuously seeing higher amounts of call open interest additions. This shows that the upsides on the market are capped for the immediate short term.

Volatility continued, marking new lows. The India VIX index declined another 2.20 per cent to 15.2250. Needless to mention, it remains at the lowest levels seen in early 2020.

Nifty50 may see a flat to mildly tepid start to the day on Wednesday. The levels of 15,800 and 15,830 are likely to act as resistance, while support will come in at 15,650 and 15,480.

The Relative Strength Index (RSI) on the daily chart is at 71.46, and remains in the overbought zone. RSI also continues to show mildly bearish divergence against the price. The daily MACD is bullish and remains above the signal line. A candle with a long lower shadow has emerged on the charts. The occurrence of such a candle near the high point is a hint that a loss of momentum is likely at higher levels.

A defensive undertone was evident in Tuesday’s session with the underperformance of financial services and banking stocks. On the other hand, there was strong demand in select consumption and pharma stocks, which are a defensive play. It is much likely that such a trade setup may persist for some time in the immediate short term.

All in all, we reiterate the need to approach the market with a high degree of caution. We recommend following the momentum with strict trading stop losses should in place to ensure optimal protection of profits at higher levels.

(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])