Nifty: Trade Setup: Nifty facing stiff resistance at 16,000; chase uptrend cautiously

Friday’s session saw the domestic benchmark equity index Nifty going near to its all-time closing high once again as it ended the narrow and range-bound session in green.

The index opened on a positive note and saw itself trading within a narrow range. Nifty soon slipped momentarily in the negative territory twice, while marking its low point of the day. After that, it crawled back inside the positive zone and kept gradually rising higher. It went near its high point, but could not retest that level. In a relatively capped and quiet session, the headline index closed with a net gain of 69.90 points or 0.44 per cent.

The market is inching higher; while doing so, there is an evident lack of internal strength in the market. However, given the up move, one has little option but to follow the direction of the trend. But this chase of the uptrend should be done in an extremely cautious manner. In the previous session, economy-facing stocks like financials and metals did better. However, volatility saw a huge drop as India VIX declined by 11.46 per cent to 13.3675. Undoubtedly, this remains one of the lowest levels seen in the recent past and is definitely one of the most concerning factors given the present technical setup.

The market is set to have a quiet start on Monday. However, the behavior of Nifty against the price levels of 15,850-15,900 would be crucial to watch. The levels of 15,900 and 15,985 may act as resistance points, while support is likely to come in lower at 15,760 and 15,680 levels.

The Relative Strength Index (RSI) on the daily chart stood at 65.14; it continued to show bearish divergence against price. The daily MACD was bearish and remained below its Signal Line. A Spinning Top occurred in the previous session on the candles. This formation occurs when there is little price action in the session; this also depicts lack of directional consensus on any given day.

The pattern analysis shows that the index is within a striking distance of its all-time high levels. However, it still faces resistance in the 15,850-15,900 zone; moving past these levels convincingly will be crucial for the index for any sustainable upside to occur from the current levels.

If Nifty is able to move past the 15,850-15,900 zone, it will face very stiff resistance near 16,000 as this strike continued to hold maximum Call OI since many weekly expiries. However, in other words, if the index is unable to negotiate this resistance zone of 15,850-15,900, it will stay highly vulnerable to profit-taking bouts at higher levels. Any corrective move, if at all it occurs, will see a spike in volatility as the volatility is at its lowest at present. A continued cautious outlook 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 milan.vaishnav@equityresearch.asia)