Nifty: Trade Setup: Nifty is consolidating, not correcting; that shows internal strength

Heavy consolidation continued in the domestic equity market, as Nifty traded rangebound and ended the day on a modestly positive note. The market saw a resilient but quiet opening on the expected lines. It opened positive and got stronger in the first hour of the trade even as it marked its high point. However, in the first half of the session, it gradually pared all the gains to slip into the negative zone.

The index recovered in the late afternoon trade and crawled back inside the positive territory. The benchmark index closed with a modest gain of 20.05 points, or 0.12 per cent. Though there are no distinct signs of any major corrective move, but the current technical setup suggests that rangebound consolidation may continue.

The 16,300 level, if taken out, may fuel a fresh rally in Nifty. However, until that happens, this point will continue to offer resistance as high Call writing is evident on this level. Volatility remained unchanged; and INDIA VIX remained at the same level, losing only 0.01%. Nifty’s behaviour against the 16,300 level needs to be watched closely in the near term.

Tuesday’s session is likely to see a quiet start. The market is likely to stay largely resilient and rangebound. The 16,320 and 16,400 levels will act as key resistance, while supports will come in at 16,200 and 16,130 levels. The Relative Strength Index (RSI) on the daily chart stood at 67.57; it continues to remain neutral and does not show any divergence against the price.

The daily MACD is bullish and remains above the signal line. A Spinning Top occurred on the candles. Spinning Tops are formed when there is very little difference between the opening and closing levels. They form a small real body and are results of lack of directional consensus among the market participants.
Pattern analysis shows the breakout that happened after the Nifty took out the 15,900-15,950 zone has sustained nicely. Instead of correcting, Nifty is consolidating near its high point, and this shows the market’s internal strength as of now.

All in all, we reiterate avoiding aggressive shorts while approaching such technical setups. All purchases must be kept limited to defensives and in largecaps, as the broader market may continue to underperform. Bank Nifty may relatively outperformed the broader market, and may continue doing so over the coming days.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)