Nifty: Trade Setup: Nifty vulnerable to profit booking near 12,000-12,025

Nifty opened on a positive note on Friday; the levels that it marked in the early minutes of the trade became the high point of the day. The index did not move past those levels for the whole day after that. The session was spent by the market oscillating back and forth within a 40-point range and took no directional bias at all. After a day of listless trade, the headline index went on to end with a modest gain of 33.90 points or 0.28 per cent.

The market is in a prolonged consolidation phase as the level of 12,000 has become a major and stiff resistance point. It would pose formidable resistance, unless taken out convincingly. Friday’s session was the sixth consecutive day when Nifty stayed within the broad range formed on October 15th.

The high point of that session was 12,025 and this makes the 12,000-12,025 zone a crucial resistance zone to watch out for. Volatility cooled off as the India VIX declined by 3.57 per cent to 21.8275.

ET CONTRIBUTORS

Monday’s session is likely to see a soft start to the day. The levels of 12,000 and 12,025 will act as resistance points, while support will come in at 11,840 and 11,785 levels. The Relative Strength Index (RSI) on the daily chart is 62.08; it stays neutral and does not show any divergence against price. The MACD is bullish and trades above the Signal Line. However, the declining slope of the histogram suggests a rapid deceleration of momentum in the market.

A spinning top occurred on the candles; it often denotes an indecisive session and can cause a decline if it keeps appearing after a prolonged up move.

The pattern analysis confirms that post creation of a mother bar on October 15 which had a large trading range, all the subsequent six sessions have been within the range of this large bar. This has made the upper level of this bar a stiff resistance for the market.

Overall, the resistance at 12,000-12,025 zone is so strong at present that unless these levels are taken out convincingly, the market will remain highly vulnerable to profit taking bouts near this zone. This makes it important for market participants to not only avoid high leveraged exposures, but also guard profits vigilantly at higher levels until the market is out from the present consolidation zone. A cautious approach is advised for the day.


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