Trade Setup: Breakout above 15,900-15,950 zone crucial; avoid aggresiveness

The market opened on a mildly positive note. In the early minutes of the trade, the index slipped into the negative zone to mark the low point of the day. After that the index recovered to crawl back into the positive zone. It gained some strength as the day progressed. However, the last hour-and-a-half saw the market paring its gain. The headline index finally ended the day with a modest gain of 32 points or 0.20 per cent.

It is important to note that Nifty is yet to move past the crucial 15,900-15,950 zone. Not only did the market not penetrate this zone, but it also retraced after testing the upper edge of the consolidation range. Going by a basic classical pattern analysis, it will be a simple conclusion that the breakout has not yet taken place. It will take place only after the index moves past 15,950 convincingly. Also, it is important to note that this breakout is something that should not be taken for granted. A confirmation should be awaited; for this to happen, a convincing move above 15,900-15,950 area would be important.

Monday’s session is likely to have a quiet start to the day. The levels of 15,900 and 15,965 will act as resistance points, while support will come in at 15,780 and 15,710 levels. The Relative Strength Index (RSI) stood neutral at 55.90 and did not show any divergence against price. Though it remained neutral on a 14-day period, if we subject it to a pattern analysis over a longer period, it appears to be marking lower tops which is not a good sign. The daily MACD was bearish and remained below the Signal Line.

ETMarkets.com

A Doji occurred on the candles. Doji emerging near the resistance point is a sign of impending weakness; however, it will require confirmation on the next trading day. In any case, unless a clean breakout is achieved, such patterns hold a potential to stall the current up move.
Overall, in broader terms, the market is still under consolidation. Nifty has formed a sideways consolidation zone with the 50-DMA level acting as a support and the upper zone of 15,900-15,950 acting as a resistance. Unless this zone is violated or breached on the either side, the market will not display any definite directional bias and continue to trade in this broadly defined range. We recommend avoiding aggressive positions on either side and also suggest continuing to approach the market on a cautious and selective note.

(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 [email protected])