Trade Setup: Nifty forming a potential top at 15,850-15,900 levels; stay stock specific

Headline index Nifty had a soft start to the day and marked its intraday low in the early morning session. The morning session also saw the market pulling itself back from the low point. Some recovery was pared again and after that the index spent the entire session moving sideways within a limited and defined trajectory. Nifty did not make any major headway and took no directional bias. The headline index finally ended with a net loss of 38.10 points or 0.24 per cent.

While continuing to stay within a broad trading range, the market may make a positive start and it is also likely to see some mild technical pullback. However, sustainability of such likely pullbacks is important. It would be crucial to see the intraday trajectory that the market forms after opening as that would dominate the trend for the day.

Volatility took a hit as India VIX came off by 4.55 per cent to 12.9425 to once again near its lowest levels seen in the near past. The zone of 15,850-15,900 continued to be a major resistance zone for the market.

Monday’s session may see the levels of 15,745 and 15,780 acting as potential resistance points, while support will come in at at 15,600 and 15,550 levels.

The Relative Strength Index (RSI) on the daily chart stood at 51.22; it has formed a fresh 14-period low which was bearish. RSI stayed neutral and did not show any divergence against price. The daily MACD was bearish and remained below the Signal Line. A Spinning Top occurred on the candles, reflecting a lack of directional consensus among market participants.

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Pattern analysis shows Nifty forming a potential top at 15,850-15,900 levels. Unless these levels are taken out convincingly, the market will continue to consolidate and will stay prone to profit-taking bouts.

All in all, although the index is likely to have a positive start and may experience a technical pullback, we recommend not chasing any positive start to the trade. Instead, it would be rewarding to stay stock specific. Sectoral trends may be absent but there are possibilities of defensive pockets showing improved relative strength against the broader market.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])