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stock market technical analysis: Trade Setup: Major downside in Nifty unlikely; stick to low beta stocks


In the previous technical note, it was mentioned that headline index Nifty faces resistance in 17,150-17,200 zone in form of its short-term 20-DMA as well as a small pattern trend line. It was imperative for the index to move past this zone for an extended up move.

On anticipated lines, the Indian equity market resisted this zone and ended with a modest cut on the last trading day of the week. After a positive start on Friday, Nifty soon slipped into the negative territory after marking day’s high in the early minutes of the trade. The weakness persisted until afternoon; after that the market attempted to recover its day’s losses. At one point in time, the index had almost recovered the day’s losses. However, after giving up some recovery, the headline index ended the day with a net loss of 68.85 points or 0.40 per cent.

As we step into the last week of the calendar year, it is also a week of monthly derivatives expiry. Apart from this, the holiday season in major global markets will impact participation in the domestic market as well due to lack of any meaningful cues. Having said this, the 20-DMA is at 17,147 and the trend line pattern resistance is at 17,155. This makes the 17,150-17,200 zone a major resistance area for the coming days. Unless the index moves past this point, we will see the market finding resistance and consolidating near these levels.

nifty trade setupET CONTRIBUTORS

Monday’s session is likely to have a quiet start to the day. The levels of 17,085 and 17,140 will act as immediate resistance points for Nifty, while support would come in at 16,960 and 16,880 levels.

The Relative Strength Index (RSI) on the daily chart stood neutral at 43.67 and did not show any divergence against price. The daily MACD was bearish and remained below the Signal Line. However, the narrowing slope of the histogram was seen moving towards a positive crossover in the coming days.

A bearish engulfing candle emerged on the candles near the resistance zone of 17,150-17,200; this makes this zone all the more important for the market in the near term.

It is reiterated that it is unlikely that the market may make any major directional move on the downside. If at all some tepid behavior persists, it will largely keep the index within a broad trading range. In the same breadth, we will also not see any major directional up move unless Nifty moves past 17,150-17,200 zone convincingly. Until the market moves past this zone, it is strongly recommended to keep exposures at modest levels while keeping purchases limited to defensive and low beta stocks.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)



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