Trade setup: Nifty likely to consolidate more, has hurdle in 12,000-12,050 zone

In a rangebound session on Thursday, which was dominated by weekly options expiry, NSE Nifty headed nowhere and ended with marginal losses. The index saw a positive opening, but soon slipped into the red. After recovering from the day’s low, it hovered around the 12,000 level. The index again failed to break above the crucial 12,000-12,050 zone and settled with a loss of 30.70 points or 0.26 per cent at 11,968.40.

In Wednesday’s session, 12,000 strike continued to hold maximum Call open interest, and this prevented the headline index from attempting a breakout. Nifty has remained in a broad consolidation zone of 12,050-11,800. The 12,000-12,050 range continues to be a significant hurdle.

Friday’s session is likely to see a muted start. Nifty might witness some mild initial upmoves, but will find stiff overhead resistance at 12,000 and 12,068 levels. Supports may come in at 11,910 and 11,850.

The Relative Strength Index (RSI) on the daily chart stood at 64.04 and stayed neutral, showing no divergence against the price. The daily MACD remained bearish and traded below its signal line. The Percentage Price Oscillator (PPO) stayed negative.

A small engulfing bearish candle was formed on the charts. This candle is a bearish formation if it occurs during an uptrend, which is the case now. Further, it has appeared after a ‘Doji’ in the previous session. The present structure has the potential to stall the current rally and keep the market in a consolidation.

We recommend traders to avoid aggressive positions on either side. Nifty has refused to move out of the broad consolidation range, with the 12,000-12,050 zone acting as stiff resistance. We expect these levels to continue posing very hurdle.

Over-leverage positions should be avoided unless a directional bias is established. We reiterate a cautious view on the market for Friday.

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