Trade Setup: Selling pressure on each upside move till Nifty crosses 12,000

The market gave up a bit more than it gained in the previous session as the day remained thoroughly bearish with the Nifty ending with a deep cut.

The market saw a resilient start to the day and traded in the positive territory for a while. However, the gains were very limited, and Nifty marked its intraday high during this time. After that, the market came under profit booking pressure. The index slipped in the red and remained within a falling channel, while marking incremental lows. Despite a modest pullback from the low point, the headline index ended with a net loss of 159.80 points, or 1.34 per cent.

This was the ninth session in a row that stayed within the large trading range formed on October 15th. That session had resulted in the formation of a broad trading and consolidation range, and now Nifty is near to the lower edge of that channel. There are high possibilities that Nifty may test the support area of 11,600-11,625, and any violation of this zone will open up the possibility of the index testing its 50-DMA.
If Nifty stays in the present consolidation range, it is unlikely to make any sustainable up move as long as it is below 12,000. Thursday's session is likely to see the levels of 11,770 and 11,845 as resistance points, while support will come in at 11,635 and 11,560. Any corrective move happening near the support zone is likely to make the trading range wider for the market.

The Relative Strength Index (RSI) is 51.47; it has marked a new 14-period low which is bearish. The RSI also shows a bearish divergence against price. While the price has not yet marked its 14-day low, the RSI has already gone ahead forming a new 14-day low.

A bearish engulfing candle occurred on the charts. Although within the area formation, it’s occurrence below 12,000 marks the importance of the 12,000 level as a formidable support point.

Thursday's session marks the expiry of the current month derivative series. The market will find selling pressure on each upside move as long as Nifty stays below 12,000.

However, we will continue to find stock-specific opportunities in defensives, and those stocks whose relative strength is stronger than the market. A continued cautious 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)