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Trade setup: Nifty50 vulnerable below the 10,300-10,350 zone

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In Monday’s technical note, we had pointed out that Nifty opening higher and then declining from the confluence area of two resistance levels will create a fresh resistance zone.

In line with that analysis, the index again saw a gap-up start, but failed to move past that zone. Tuesday’s session once again saw Nifty start near the 100-DMA, which currently stands at 10,276. After testing the day’s high near 10,291, Nifty came off over 250 points from the high point of the day. While showing no intention to recover, the headline index ended near the low with a net loss of 120 points, or 1.19 per cent.

The market retraced from the same confluence area, where two resistance points meet. This has reinforced the credibility of this resistance zone. For the next trading session and beyond, Nifty will continue to face stiff resistance in the 10,300-10,350 zone. Any significant upside is unlikely, unless the index moves past this level.

The volatility index inched higher slightly by 1.88 per cent to 30.2050. In all probability, the market has halted its sharp short squeeze. Any more upside until the 10,350 level will create weakness at higher levels.

On Wednesday, the market is likely to see a tentative start, with the 10,090 and 10,160 levels acting as key resistance, while supports will come in at 10,000 and 9,910 levels.

ET CONTRIBUTORS

The Relative Strength Index (RSI) on the daily chart stands at 64.07. It remains neutral and does not show any divergence against price. The daily MACD is bullish as it trades above the signal line. A black body emerged on the candles. This is the second consecutive black body that has appeared at the 100-DMA. This reinforces the importance of the overhead resistance zone.

Pattern analysis shows Nifty is in an upward rising channel after resolving the Rising Wedged pattern. Currently, it us facing resistance at the upper rising trend line and the 100-DMA level on a closing basis.

All in all, the market is likely to act in a tired state of mind. Despite the liquidity-driven rally, the market is exhibiting signs of exhaustion over the past few sessions and will continue to do so in the short term. We recommend continuing to use all pullbacks from now on to make exits and protect profits at higher levels.

As long as Nifty stays below the 10,300-10,350 zone on a closing basis, it remains vulnerable at higher levels.

(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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