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The 50-stock pack has remained in a broadening formation, and is currently below the upper trend line of this formation. The rising nature of this trend line is preventing a clean breakout.
It is also important to note that Nifty has formed this candle for the second day in a row, which suggests a loss in momentum at current levels. The present technical structure signals towards some consolidation.
Friday’s session is again likely to see a quiet start, with 12,390 and 12,410 levels acting as resistance. Support may come in much lower at 12,310 and 12,235. Any corrective move is likely to make the trading range wider than usual.
The Relative Strength Index (RSI) on the daily chart was at 61.03 and stayed neutral, showing no divergence against the price. The daily MACD was bullish and traded above its signal line.
A Spinning Top pattern was formed on the charts. The formation of this candle after a ‘Hanging Man’ in the previous trading session, suggests loss of momentum. Even though this would require confirmation on the next trading day, these candles have the potential to stall the rally.
As per pattern analysis, Nifty has continued to resist the upper trend line of the current broadening formation over the past couple of weeks. The rising nature of the upper trend line is preventing a clean breakout in the index.
Nifty has risen over 225 points over the past couple of sessions with a very little or no corrective moves at all. With the current loss of momentum, the consolidation looks imminent.
Traders can expect some minor corrective moves in the front line index or some consolidate in a broad range. We would recommend traders to avoid aggressive builtup of positions and adopt a cautious view.
(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)
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