Monday Trade Setup: Mild Technical Pullbacks Likely; Larger Technical Picture Warrants Caution
The Friday’s trade remained somewhat of consolidating nature as the NIFTY remained in the sideways trajectory for the entire session while ending with modest gains. After a flat start and a dip soon after that, the index recovered from its immediate support area of 11740-11760 zone. The Index pulled back from these levels and then traded sideways in a capped range and ended the day with gains of 26.90 points (+0.23%).
Monday’s start can be slightly positive in nature as the NIFTY has bounced back from its short term support. However, the broader technical setup suggests no sustainable up move for the markets apart from mild technical pullbacks that we might witness. There are higher probabilities that if the NIFTY opens on a positive note, it may lose strength going ahead. The opening of the markets on Monday and the trajectory that it forms during the day will be critical to determine the trend for the session.
We expect resistance to come in at 11930 and 12000 levels. Supports come in at 11770 and 11710.
The Relative Strength Index (RSI) on the daily chart is 55.7669; it remains neutral and does not show any divergence against the price. The daily MACD remains bullish, but it appears that it is narrowing its trajectory.
A Bullish Harami pattern has emerged on candles. The present form of a Bullish Harami is bearish in the current technical setup since this has formed during an uptrend. It potentially suggests bears gaining strengths as the bulls weaken.
The pattern analysis shows the NIFTY getting a full throwback after attempting to break out from the 11740-11760 levels. It also appears that the index has fallen off from rising and narrowing wedge that it had formed after marking its lifetime highs.
As we approach Monday’s trade, there are chances that some technical pullbacks may be seen initially. However, such technical pullback, if there are any, are likely to be deceptive and the markets continue to remain vulnerable to continued profit taking at higher levels. The F&O data suggests that instead of any significant decline, the markets may consolidate. However, they show no setup that would indicate any runaway up moves in the markets.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)