Trade Setup: Nifty showing clear signs of broad-ranged consolidation; remain cautious

After demonstrating near-vertical rallies over the past couple of days, the domestic equity market finally showed some signs of broad consolidation on Friday.

Headline index Nifty opened on a modestly positive note on Friday but soon slipped into the negative territory after spending a few initial minutes in the green. The market traded with limited losses in a capped range until the most part of the day. However, selling pressure intensified in the last hour-and-a-half of the session. Following a modest recovery, Nifty ended the day with a net loss of 161.90 points or 1.11 per cent.
Friday’s session was important from a technical perspective as the index confirmed the level of 14,653 as an intermediate top for the immediate near-term. A fresh sustainable rally would occur only after the market moves past this point convincingly. In most likelihood, the market has slipped into a broad consolidation zone that was overdue in a way. The market breadth turned weaker as 43 stocks in Nifty ended on a negative note. Volatility increased as India VIX spiked another 4.27 per cent to 24.0100.

Monday's session is likely to have a soft start to the day. The levels of 14,470 and 14,535 will act as resistance points, while support will come in at 14,380 and 14,300 levels.

The daily RSI stood at 70.83. Though it has retraced from the high point, RSI still stays slightly overbought; it also remains neutral and does not show any divergence against price. The daily MACD stays bullish as it is above the Signal Line. However, the narrowing histogram suggested a sharp deceleration of momentum. A large black candle that appeared on the charts pointed towards a directional consensus of the day on the downside.

Going ahead, the market is likely to turn all the more stock-specific in nature. It has been stock-specific anyways over the past couple of days, but will turn more selective now. We recommend finding fresh short opportunities with strict stop losses in place as the market is showing distinct signs of a broad-ranged consolidation. Fresh longs, if any, should be kept strictly limited to defensive stocks and with the ones whose relative strength has been positive. A highly cautious view 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)