Trade setup: Nifty needs to hold above 11,680 level to extend rally

In a volatile and indecisive session on Tuesday, the domestic stock market oscillated in a defined range, with NSE Nifty ending with a small gain of 19.35 points or 0.17 per cent at 11,691.50.

Despite volatility and lack of direction, the 50-stock index managed to defend its 50-day moving average (DMA), which stands at the 11,680 level.

We expect the market to continue making technical pullbacks. As long as Nifty stays above 11,680, some possibilities of a technical pullback cannot be ruled out.

With the index expected to make a quiet start to the trade on Wednesday, 11,730 and 11,775 levels are likely to act as resistance points. The supports may come in at 11,660 and 11,580.

The Relative Strength Index (RSI) on the daily chart stood at 46.2346 and it remained neutral, showing no divergence against the price. The daily MACD remained bearish and traded below its signal line.


On the candles, a Bullish Harami pattern occurred. Under this formation, the current small white body was contained within an unusually large black body. During a downtrend -- which appears to be the case with Nifty -- this pattern implies an end to the decline, as the bears looked exhausted. Such a formation somewhat increases the chance of a mild technical pullback.

Though we continue to see the possibility of a technical pullback, we also reiterate maintaining extreme caution at higher levels.

Pullbacks -- if 50-DMA is protected on a closing basis -- will continue to face profit taking at higher levels. These pullbacks are expected to be purely technical in nature and should not be used to make aggressive purchases.

While maintaining a highly vigilant approach, we advise traders to continue to approach with a high degree of caution.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)