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Monday Trade Setup: NIFTY To See A Soft Start; To Stay Largely Range-Bound

In a volatile day of trade, the equity markets suffered a minor breach of the broad consolidation zone that it has formed over the past two weeks. The NIFTY saw itself opening on a mildly stronger note and on the positive lines. However, after the better-than-expected opening, the index formed its high point in the early minutes of the trade. After that, it started to gradually pare the gains. At one point in time, it also slipped deep in the negative as it came off nearly 200-odd points from the high of the day. However, the second half of the session saw some substantial recovery and the NIFTY ended the day with a net loss of just 28.40 points (-0.24%).

To technically important things happened on Friday. First, the NIFTY suffered a breach from the broad trading zone that it had formed following a wide-ranging session on October 15th; and it tested the 50-DMA and bounced back from that level. The 50-DMA, which currently stands at 11548 would be an important near-term support to watch at close levels. The volatility increased as the INDIAVIX moved higher by 3.04% to 24.7525.

Monday is likely to see the levels of 11690 and 11735 acting as resistance points. The supports come in at 11590 and 11545 levels.

The Relative Strength Index (RSI) on the daily chart is 48.04; it stays neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above the signal line. A spinning top occurred on the candles which signifies a indecisive session. However, it occurring within an area formation leaves it insignificant in the present technical setup.

The pattern analysis shows that the following the large wide-ranging bar created on October15th, the NIFTY stayed within this range for the next ten sessions. However, in the previous trading day, the NIFTY violated the support of this trading range, though it managed to pullback to the edge of this range.

While having a look at the F&O data, it appears that the NIFTY futures have added over 9.83 lakh shares or 9.84% in Open Interest. Though these figures are just a day after the expiry so will show some inflated addition, but this signifies creation of some short positions in the markets as well. Few minor pullbacks cannot be ruled out. However, it is recommended not chasing these pullbacks as they will simply take the NIFTY inside the trading range. As sustainably up moves are unlikely so long as NIFTY stays below the 12000 levels, any move that takes the NIFTY near the 12000 levels will again make it vulnerable to profit taking bouts at higher levels.

While sticking to defensive methods, a highly cautious and stock-specific approach is advised for the day.

Milan Vaishnav, CMT, MSTA
Consulting Technical   Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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