Monday Trade Setup: NIFTY's Behavior Against This Level Imp; Sustainable Upsides Only Above 12230
The Indian equity markets failed to capitalize on the positive opening that it got on Friday, and ended the day with a decline following a long unwinding from the higher levels. The NIFTY opened with modest gains but soon pared all those early morning gains to slip in the negative territory. After that, the index remained in a declining trajectory for the entire session. While showing no signs to recover, the NIFTY went on to slip below its critical support levels. Finally, it ended the day with a net loss of 61.20 points (-0.50%).
The coming week is a truncated one with Friday being a trading holiday. The NIFTY has ended a notch below its crucial 50-DMA, which presently stands at 12130. The short-term 20-DMA currently remains at 12065. This being said, the markets saw some long unwinding from higher levels, which is evident as the decline in the index came with a reduction of net Open Interest in the futures segment. In all probability, the NIFTY has formed a lower top at 12230 levels, as evident from the daily chart.
Monday is likely to see a soft start to the trading week. The levels of 12165 and 12200 will act as overhead resistance points, while supports will come in at 12070 and 12035.
The Relative Strength Index (RSI) on the daily chart is 50.78; it stays neutral and does not show any divergence against the price. The daily MACD is bullish and trades above its signal line. However, it is reflecting some deceleration in the current momentum.
While having a look at the pattern analysis, after forming the current top at 12430, the NIFTY has probably formed a lower top near 12230 point on the daily chart. From a basic pattern analysis, it is evident that unless the NIFTY moves past 12230, there are little chances of any runaway moves happening in the markets.
All in all, in the immediate short term, the price action of NIFTY against the 50-DMA will be crucial to watch. The index has ended just a notch below this and any more decline will increase the chances of the NIFTY testing its short-term 20-DMA near 12065. The 50-DMA is expected to act as a support on a closing basis, and any violation of this level will invite some more weakness in the markets.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)