Nifty: Trade Setup: Nifty’s intraday trajectory crucial; focus on defensive largecaps

While trading perfectly on analyzed lines, the domestic equity market did both the things that it was expected to do. It opened with a gap-down but near its support level and demonstrated strong resilience to global weakness.

After opening on a negative note, headline index Nifty soon crawled higher to recover from its opening low point. The index then oscillated in a defined sideways trajectory while not showing any incremental weakness. Nifty ended with a net loss of 118.35 points or 0.71 per cent.

Metals continued to drag given the surge of strength in the US Dollar Index. The level of 16,380-16,400 which is the most immediate support area for Nifty needs to be defended in order to avoid any incremental weakness from creeping in the market. The fabric of the market will likely stay defensive and the broader market may continue to relatively underperform the index. Volatility shot up on expected lines as India VIX rose 8.6 per cent to 14.0150.

The recovery that we witnessed post the gap-down opening is likely to extend on Monday as well. The market is likely to open on a positive note. The intraday trajectory that Nifty forms after opening will be crucial to watch. The levels of 16,495 and 16,595 will act as resistance points, while support will come in at 16,380 and 16,310 levels.

The Relative Strength Index (RSI) on the daily chart stood neutral at 65.36 and did not show any divergence against price. The daily MACD was bullish and above its Signal Line. A white body appeared on the candles.
The pattern analysis shows that the index has taken a temporary support at the upper edge of the interim consolidation zone that it had created after the surge following a breakout. The zone of 16,375-16,400 will continue to provide temporary support for the index in the immediate near term.

All in all, we recommend approaching the market in the way we have been doing over the past couple of days. High beta stocks like metals, etc, which have runup too hard, should be avoided; though aggressive shorts are not advised as well. Instead, it would be prudent to keep focusing on defensive largecaps and on stocks that have relatively underperformed the market. Overall, a cautiously positive approach is advised for the day.

(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)