Trade setup: Nifty vulnerable at higher levels; stay stock specific

In the previous daily note, we had highlighted the formation of a Rising Wedge pattern on the daily chart. Indian equity market continued to trade on the anticipated lines and failed to move past the upper trend line resistance of the wedge on Monday.

Nifty failed to capitalise on stronger-than-expected start, as it came off opening highs in just a few minutes after the opening. The index spent the rest of the day in a defined range without taking any directional bias. It finally ended flat with a negligible loss of 4.90 points or 0.05 per cent.

The 50-stock pack not being able to move past the upper trend line of the Rising Wedge is an important technical point, which one needs to take note of. For Tuesday and the upcoming sessions, unless Nifty moves past the upper trend line resistance area of 9,400, we will not see any sustainable upmove.

The volatility moderately rose as India VIX climbed 2.03 per cent to 43.45.

ET CONTRIBUTORS

We expect a flat to a negative start to the session on Tuesday. The 9,300 and 9,385 levels will act as resistance, while support may come in at 9,205 and 9,110.

The Relative Strength Index (RSI) on the daily chart was at 50.27 and stayed neutral, showing no divergence against the price. The daily MACD was bullish and traded above its signal line. No significant formations were noticed on the candles.

As per pattern analysis of the daily chart, Nifty remained trapped in a Rising Wedge formation. Such a structure following a steep bearish decline often resolves on the downside. Unless the index negotiates the upper trend line of the wedge by moving past it, the index will continue to remain vulnerable at higher levels.

Given the technical setup on the daily charts, we would recommend traders to refrain from initiating any significant long positions unless Nifty moves out of the wedge. Unless it moves outside the wedge on the higher side, it will remain vulnerable. A highly cautious and stock-specific 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)