Nifty50: Trade Setup: Nifty50 is in a narrow range of consolidation; stay cautious

It was a day of through consolidation in the market; much on the lines of the analysis carried out in the previous note. It was mentioned that while Nifty may consolidate, the other indices like those for banks, auto and PSE may continue to improve their relative strength against the broader market.

Much on those lines, Nifty saw a positive and better-than-expected start to the session. However, it marked the day’s high in the opening minutes and then pared the gains to trade near the previous close. The index moved sideways in a very narrow range and took no directional call. It finally ended flat with a negligible gain of 1.90 points (+0.01 per cent).

It was mentioned in the previous note that no bounce shall occur unless Nifty moves past the 17,950 level. It was also mentioned that any slip below the 17,800 level will push the market into consolidation. Nothing of the two events occurred and this kept the market indecisive and directionless.

Going by the current technical setup, Nifty is in a very narrow range of consolidation. For it to rise further, it would be crucial for Nifty to move past the 17,950 mark. On the other hand, any slip below the 17,800 level will convert the current narrow-range consolidation into a defined broad-range consolidation.

Volatility spiked during the session; India VIX surged 6.68 per cent to 18.0525. Tuesday’s session will see the 17,900 and 17,940 levels act as possible resistance points. Potential supports should come in at 17,810 and 17,730 levels.

The Relative Strength Index (RSI) on the daily chart stood at 77.93; it stayed in the overbought zone. The RSI remains neutral and does not show any divergence against the price. The daily MACD remains bullish and trades above the Signal Line. Apart from a black body, no other formation was seen on the charts.

The 17,950 level will now continue to act as resistance, and Nifty will continue to stay range-bound and consolidate. Only a slip below the 17,800 level will make the current consolidation a bit wider. We recommend a highly stock-specific approach and focus on those stocks and sectors that continue to improve their relative strength against the broader market. Shorts, as of now, must be avoided. A cautious outlook 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)