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Stock Market: Trade Setup: Focus on defensive, non-discretionary stocks


The domestic equity market on Friday turned out once again on the expected lines as Nifty staged a strong pullback rally to end the day with decent gains.

After a mild initial decline, Nifty maintained an upward rising channel for the entire trading session and at no point dipped in the negative territory. After seeing a secular up move across sectors, the index managed to stay near its high point until the end of the session. Finally, the benchmark ended the day with a strong gain of 244.70 points or 2.26%.

From a technical perspective, Nifty’s bouncing back after a near-vertical over 500-point decline was expected. Also, it bounced off from very near to its 200-DMA, which presently stands at 10,757. RSI also bounced off from very close to the oversold point of 30. Friday’s move of 244.70 points comes with a decline of net futures OI. The OI of Nifty futures declined by over 2.29 lakh shares or 2.85 per cent. This shows a clear discomfort near the crucial 200-DMA. The rally happened because of sharp short covering from lower levels.


Monday’s session is likely to have a stable start to the day with the levels of 11,065 and 11,155 acting as resistance points, while support will come in at 10,960 and 10,900 levels.

The Relative Strength Index (RSI) on the daily chart is 41.49; it remains neutral and does not show any divergence against price. The daily MACD is bearish and trades below its signal line. A large white body occurred on the candles showing strong consensus on uptrend in the previous session.

Pattern analysis shows that Nifty has failed twice to break above the double top resistance point of 11,430. This brings the major pattern resistance zone down to 11,400-11,430 levels from the earlier 11,800 levels. The technical pullback might continue but the zone of 11,400-11,450 will continue to pose resistance to Nifty at higher levels.

Speaking from a very short-term perspective, we may see the market seeing some more technical pullback. That being said, it would be crucial to keep a hawk-eye on the technical pullback that is happening in the Dollar Index as well. Financial stocks may either lag in performance or may put up a highly stock-specific show.

We recommend continuing to focus on defensive and non-discretionary stocks to keep a healthy risk-to-reward ratio in the coming days. While avoiding aggressive shorts, a continued 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 [email protected])

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