Trade setup: After Friday's zigzag show, what's in store on Monday
Nifty is likely to see the 11,360 and 11,405 levels act as strong resistance points.
After a 50 per cent retracement from its most recent gain, Nifty has managed to cling on to its 200-DMA level, which currently stands at 11,270. With its crucial supports at the 200 DMA and near the 11,100 mark, the index has formed a trading zone for itself in this area.
We expect the market to oscillate in this range for some time and expect it to remain extremely vulnerable to bouts of profit taking at higher levels.
On Monday, Nifty is likely to see the 11,360 and 11,405 levels act as strong resistance points. Supports should come in lower at 11,270 and 11,190 levels.
The Relative Strength Index (RSI) on the daily chart stood at 53.0308. It remains neutral and does not show any divergence from the price. The daily MACD remained bearish and traded below the signal line.
It appears from pattern analysis that Nifty gave up 50 per cent of its most recent gains, and is attempting to consolidate in a capped range. In the process, it has managed to keep its head above the 200-DMA level. Any breach of the 200-DMA level on a closing basis will see Nifty retrace more from the current levels.
Despite the volatile moves and Nifty hanging on to the vital 200-DMA, it is still not entirely out of the woods. The market is likely to consolidate for some more time before a sustainable directional bias is established. Looking at the broader technical setup, the market looks vulnerable at higher levels. Nifty is likely to encounter stiff resistance going forward and may see bouts of profit taking from there. We recommend staying cautious at higher levels and approaching the market in a highly stock-specific manner.
(Milan Vaishnav, CMT, MSTA, is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)