Trade Setup: 12,000 strong resistance point for Nifty; stay light on positions

The domestic equity market behavior turned out to be quite contrary to expectations as it opened higher and ended on a positive note.

After a modest gap-up opening, Nifty got a bit stronger but kept itself within a very defined and limited range for the entire session. Later on, the index not only moved much higher beyond the opening highs, but also did not lose the ground. After staying almost sideways for the most part of the session, the headline index ended the day with a net gain of 110.60 points or 0.94 per cent.

After a sharp decline on Thursday that created a large black candle, Monday was the second such session which was within the range of the session that originally witnessed the large decline. The small bodies of the session look orchestrated and depict an artificial and indecisive market behavior which warrants a great caution as long as Nifty
trades below 12,000.

The zone becomes all the more important as it has clearly marked itself as an intermediate top for the market. Volatility increased slightly as India VIX rose marginally by 0.80 per cent to 21.8175.

Tuesday's session is likely to see the levels of 11,925 and 11,960 as immediate resistance points, while support would come in at 11,800 and 11,775 levels.
The Relative Strength Index (RSI) on the daily chart is 61.16; it is neutral and does not show any divergence against price. The daily MACD is bullish and trades above the Signal Line. A Doji star occurred on the candles, showing yet another indecisive session which also had a lack of conviction on the either side from market participants.

Overall, any up move that take us towards the 12,000-mark and yet not breach it on the upside can be deceptive. For any sustainable up move, moving past 12,000 is essential and unless that happens, all moves would be within a broad consolidation range with 12,000 acting as a strong resistance point.

Sector rotation too happened on the expected lines. We saw preference towards consumption and other defensive stocks, and this is also likely to continue over the coming days. As long as Nifty stays within this broad range, we recommend staying light on positions and protect profits on the either side along with the market moves.

(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)