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Nifty is facing resistance at the rising trend line of the current broadening formation. A large Bearish Engulfing Pattern was formed near this vital resistance point. The formation of this candle near the high point signals a likely top for the market in the near term. The F&O data also suggests a long unwinding in the market.
With the US market closed on account of Martin Luther King Day, we will have no overnight global cues to deal with on Tuesday morning.
Even though a minor pullback cannot be ruled out, the broader technical setup remains weak. The 12,265 and 12,290 levels will act as stiff resistance. Support will come in at 12,190 and 12,110.
The Relative Strength Index (RSI) on the daily chart stood at 52.07 and continued to remain neutral, showing no divergence against the price.
The daily MACD was bullish. While the indicator traded above its signal line, it was seen narrowing its trajectory towards a negative crossover.
As per pattern analysis of daily charts, Nifty has resisted the upper rising trend line of the current broadening formation. The index has closed near the short-term 20-DMA, which is at 12,223.
All in all, the technical structure is damaged in the immediate short-term. Keeping this in view, even if the market shows some intermittent technical pullbacks, they should not be used for making any significant purchases.
Nifty is vulnerable at higher levels and any move on the upside is likely to encounter strong selling pressure. We recommend a highly cautious view on the market and would advise traders to refrain from creating excessive exposures in the immediate short term.
(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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