Trade setup: Sanity set to return; Nifty may attempt a mild pullback

The Thursday’s session on Dalal Street was remarkable in many ways as Nifty and Sensex moved past 12,000 and 40,000 levels, respectively, to hit fresh intraday lifetime highs.

However, profit booking gripped the market soon after as Nifty came off nearly 450 points and Sensex 1,400 points to end lower.

Nifty’s final score read 80.85 points or 0.69 per cent in the red.

The 50-stock pack has again failed to confirm a breakout despite marking an incremental high. As per the line charts, the index has resisted precisely to the 11,760-11,850 zone on a closing basis.

Also, volatility index or India VIX dropped 29.77 per cent to 19.4050. Failure to confirm the attempted breakout showed that the majority of the professional money has no qualms with Nifty resisting the 12,000 mark. The 12,041 level has established itself as an intermediate top in the immediate short term.

We expect a soft start to the trade on Friday. There might be some modest technical pullbacks, but Nifty will find resistance in the 10,760-10,850 zone going ahead. Supports may come lower at 11,610 and 11,530.


The Relative Strength Index (RSI) stood at 55.5112. While remaining neutral, the RSI did not show any divergence against the price. The daily MACD stayed bullish and traded above its signal line.

An engulfing bearish candle occurred on the charts. This candle was the third bearish candle after the emergence of a dark cloud cover, which was followed by a spinning top. The formation of this massive bearish engulfing candle has tremendously added to the credibility of the 12,000 level and potentially establishes this level as a short term top for Nifty.

In previous market notes, we had emphasised on avoiding mindlessly chasing the momentum. This caution will remain if we witness some technical pullback. We expect Nifty to enter a broad consolidation range and remain broadly rangebound over the coming sessions. We recommend traders to maintain a cautious and highly stock-specific outlook for the day.

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