Trade setup: Nifty likely to stay in a wide range with upside capped

Nifty has had a jittery start to the week and Monday’s session turned out to the choppy on the expected lines. The index saw a negative start, oscillated in a wide range before closing with net losses.

Nifty witnessed a negative start and weakened further in the first half of the session following a steep decline in many frontline stocks. However, afternoon trade saw the markets recover some bit from lower levels. The index could not recoup all the losses, but managed to recover some ground before ending the day with a net loss of 159 points, or 1.60 per cent.

Not only did the session remain wide-ranging, it also saw a spike in volatility. Volatility Index, INDIA VIX, surged 5.69 per cent to 32.5775. Nifty has formed a lower top, but higher bottom, and this may mean some resistance in the next trading session. Some fresh shorts got added to the system on Monday and this may lend support on the downside in the event of any fresh bearish move. But this can also infuse volatility in the market.

Broadly speaking, we can expect the market to trade in a broad range with increased volatility in the next trading session. In Tuesday’s session, Nifty is likely to see the 9,855 and 9,895 levels act as key resistance points, while supports are likely to come in at 9,760 and 9,690 levels.

The Relative Strength Index or RSI on the daily chart stood at 5.52; it remained neutral and did not show any divergence from the price. The MACD remained bullish as it stayed above the signal line. However, a sharp drop of the histogram showed this indicator is about to give a negative crossover over the coming days.

A Black Body emerged. Apart from this, no other important formations were observed on the candles. Pattern analysis showed Nifty remained in an upward rising channel that got formed following the resolution of the Rising Wedge into a continuation pattern. The index currently remains above the 50-DMA, but below the 100 DMA with a negative bias.

ET CONTRIBUTORS

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Monday’s session has seen some addition in the net Open Interest in Nifty futures. This showed addition of fresh shorts and this may lend some support at lower levels if Nifty makes any move on the downside.

Having said that, we expect Nifty to remain range bound in the coming sessions, though the upsides will remains capped. We recommend approaching the market with utmost caution, remaining stock-specific and avoiding aggressive bets on either side.

(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 – Economic Times]

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