Trade Setup: Nifty may see a mild technical rebound, but remains vulnerable to profit booking

After consolidating for six days in a row, the market finally took a turn for the worse as it declined following a corrective move.

The market saw a quiet start to the day and traded within a limited range in the early minutes. Nifty also marked its day’s high point in the opening minutes. After that, for the rest of the session, the market remained in a sustained corrective pressure and stayed within a declining trajectory for the entire day. After sustained pressure and with no signs of recovery for the entire session, the last 30 minutes of the trade saw some modest recovery. The headline index finally ended the day with a net loss of 162.60 points or 1.36 per cent.

A look at the broader picture reveals the importance of the 12,000-12,025 zone as a stiff resistance area. Even with a decline of 162 points, Nifty is still within the range of the large mother bar formed on October 15th; and this makes
this the seventh consecutive session in a row that has stayed within the larger bar’s range. Volatility spiked as India VIX rose 4.60 per cent to 22.8324.
The market may see a shaky start on Tuesday with the levels of 11,810 and 11,875 acting as resistance points, while support will come in at 11,700 and 11,620 levels. The Relative Strength Index (RSI) on the daily chart is 55.66; it has formed a new 14-period low which is bearish. The RSI has also shown a bearish divergence as while it
marked a 14-period low, Nifty has not done so. The MACD has shown a negative crossover; it is now bearish and trades below its Signal Line.

A large black body emerged on the candles. Apart from this, no other formations were observed. The pattern analysis reveals that Nifty is still within the large trading range formed on October 15th. If weakness persists, the likelihood of which is more, a possibility of the market testing the lower side of this trading range cannot be ruled out.

Overall, the general preference of the market towards defensive stocks was evident and such defensive preference will prevail in the market over the coming days. Nifty may see a mild technical rebound, but any such pullback will stay less potent and remain vulnerable to profit taking bouts. The level of 12,000 continues to remain the sacrosanct temporary top for the market. A highly cautious and stock-specific approach is advised for the day.

(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)