Trade Setup: Nifty faces resistance at 15,800-15,845 levels

For a second straight day, Dalal Street traded with a bearish and corrective undertone, ending with a modest loss. The Nifty50 index saw a quiet opening on the expected lines and crawled in positive territory briefly in the first hour of trade to mark an intraday high. After that, the index slipped into negative territory and stayed there for the rest of the session. The Nifty50 index kept losing ground steadily and ended the day with a net loss of 66.25 points (0.42 per cent).

The market is, slowly but firmly, marking the point of 15,900 as the intermediate top. What is confirming this evident weakness is the persistant weak market breadth. In the previous session, the index saw 36 out of its 50 stocks decline. Another important technical factor that is making things more precarious for Nifty50 is the persistent low level of volatility.

Tuesday’s session again saw the volatility decline further to a new low. The India VIX index came off another 2.98 per cent to 13.0025. This remains one of the lowest levels VIX has seen over the years.

Nifty50 is likely to see a sober start to the day on Wednesday. The levels of 15,800 and 15,845 will act as resistance. Supports come in at 15,630 and 15,575 levels.

The Relative Strength Index (RSI) stands at 58.20. It has marked a 14-period low, which is bearish. RSI also shows a bearish divergence against the price. The daily MACD is bearish and remains below its signal line. A black body has occurred. Apart from this, no other significant formations is seen on the candles.

The pattern analysis shows clearly that the Nifty50 index continued to advance on weak internal strength. It has shown evident loss of strength by the time it tested its high at 15,901. This process has made the zone of 15,850-15,900 an intermediate top for the market for the near term.

All in all, the broader technical structure of the markets remains weak. The Nifty index may see intermittent pullbacks. However, these bounces should be utilised to protect profits at higher levels. Fresh purchases should be avoided as long as the Nifty index stays below 15,900 as it stays prone to bouts of profit taking.

All new purchases should be kept limited focused on low beta and defensive stocks. The defensive sectors usually show improved relative strength in a weak market. A continued cautious outlook is advised for the day.