/Trade setup: Multiple signs on Nifty charts signal caution; tread carefully

Trade setup: Multiple signs on Nifty charts signal caution; tread carefully

The domestic stock market stacked some more gains on Friday, as it went on to end the session posting modest gains. Though most part of the session remained strong without much volatility, the last hour of the session saw both Nifty and Bank Nifty pare some gains from their respective highs.

Nifty pared some 60 points from the high point of the day to settle with net gains of 83.60 points, or 0.74 per cent. Despite the momentum remaining strong for the entire week, Nifty paring gains in the last hour of Friday’s trade may remain an important technical cue.

There are many possibilities. It could be a sign of exhaustion and Nifty may take a breather at current level. In that case, Friday’s high point of 11,487 will be important from a very short-term perspective.


In the current setup, another factor that forces us to take an extremely cautionary view is that the market remains steeply overbought at current levels. All these things cumulatively, give enough reasons for the market to slip into a phase of consolidation.

The 11,480 and 11,535 levels are likely to act as immediate resistance on Monday while supports should come in lower at 11,350 and 11,275 levels.

The daily RSI stands at 76.6093. It has marked a fresh 14-period high, which is a bullish signal. But it does not show any divergence from price. The daily MACD continues to trade above the signal line. No significant formations were observed on the candles.

Pattern analysis of the daily chart provides another important clue that supports caution at current level. Nifty broke out of the current pattern. The present setup had a width of around 430 points. If we apply the measuring implications of the pattern, then the index has achieved its price target.

To sum up the above observations, we strongly reiterate avoiding excessive purchases at this stage. Even if there are some more upsides, the market will remain prone to imminent consolidation at current level. If unabated upward moves continue, it can get potentially unhealthy and witness equally sharp and volatile profit-taking moves from higher levels. We suggest keeping exposures modest and using all upward moves to vigilantly protect profits. A cautious outlook is advised for the day.

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

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