Trade Setup: Doji on Nifty charts is a sign of caution; protect profits

Nifty had slipped rapidly in the first hour of the morning session and formed the low point of the day. In a strong show, the index recovered from its low point by afternoon trade and spent the last hour moving in a limited range. The headline index closed flat with a negligible loss of 13.95 points (-0.08 per cent).

From a technical perspective, the market has been consolidating for the last five sessions in a row. We expect this resilient show to continue. The 17,450-17,500 zone is now a crucial area to watch; any sustainable bounce shall occur only above this zone. Until this happens, we will continue to see the key indices consolidate in this manner. In the coming sessions, stocks/sectors that are improving their relative strength against the broader markets should do well.

India VIX rose marginally by 0.59 per cent to 14.0250. Nifty is likely to see a stable start on Tuesday. The 17,405 and 17,480 levels will act as potential resistance points, while supports will come in at 17,310 and 17,265 levels.

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The Relative Strength Index (RSI) on the daily chart stood at 80.67; it remained in the overbought territory, looked neutral and did not show divergence against the price. The MACD remained bullish and was above its Signal Line. A Doji emerged on the candles. This reflects the lack of directional consensus among the participants. However, if we analyse this from a larger perspective, it is more because of the consolidation that is going on in the market.
The occurrence of a Doji is also a sign of caution. However, instead of expecting an instant corrective move, one should wait for a confirmation of the trend on the next bar. In a generally buoyant market like this, Dojis do occur amid consolidation and such formations do reflect a potential reversal point. But in the present case, they may just be a part of the ongoing consolidation.

The analysis for Tuesday stays on the similar lines. We recommend staying highly stock-specific while approaching the market. Shorts should be avoided as the corrections have been intermittent and intraday, and there is no apparent sign of weakness or possibility of any correction unless a few minor support levels are violated on the downside. It is also suggested to guard profits at current and higher levels. A cautiously positive 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 [email protected])