Trade Setup: Nifty at upper end of broad trading range; defensive stocks to outshine

In the second day of recovery, the domestic equity market continued seeing short covering throughout the day and closed the session with a decent gain.

Headline index Nifty opened mildly in the negative, but soon crawled into the positive territory after initial minutes of the trade. As it marked the day’s low point in early minutes, Nifty stayed within a rising trajectory and continued marking incremental gains. Contrary to expectations, the trading range was narrower-than-expected throughout the day and the volatility remained virtually absent. As the index progressed towards the upper end of the broad

consolidation range, it finally ended putting on gains of 134.80 points or 1 per cent.

Volatility was entirely absent during the day. This was evident as India VIX declined by 6.77 per cent to 20.4950. Following a violent revision to the mean during the session on Monday, Nifty ended up creating a broad trading range of 13,100-13,770 levels. As of now, the index is towards the upper end of this broad trading range.

Thursday’s session will not only see expiry of the weekly options, but it will also be the last trading day of the week. Friday’s session will be a trading holiday on account of Christmas. The levels of 13,645 and 13,690 will act as resistance points, while support will come in at 13,510 and 13,430 levels.

The Relative Strength Index (RSI) on the daily chart is 64.11; it is neutral and does not show any divergence against price. The daily MACD is bearish and remain below the Signal Line. Apart from a white body candle that emerged on the charts, no other important formation was observed.

The pattern analysis reveals a broad trading range getting created between 13,100-13,770 following Monday’s session. Going ahead from here, these levels may see a broad consolidation happening in between them. Presently, the index stands towards the upper end of this broad range after bouncing off from its short-term 20-DMA.

The previous session saw strong risk aversion among market participants. This was evident from the traditionally defensive stocks like pharma, consumption, IT, etc, putting up a resilient show and relatively outperforming the broader markets. This is likely to continue in the coming session as well. However, in the same breath, it is also

likely that we see some profit taking in the second half of the day. Given the long weekend coming up, participants turning cautious towards the end of the week cannot be ruled out. We recommend adopting a cautious approach and using all further pullbacks to protect profit 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 milan.vaishnav@equityresearch.asia)