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Trade Setup: Defensive texture of the market may continue; protect profits at higher levels



Trade Setup: Defensive texture of the market may continue; protect profits at higher levels

The domestic equity market chose to stay within a defined range and consolidate above its crucial support levels on Friday.

After making a flat start, headline index Nifty soon slipped into the negative zone in morning session. After trading sideways and in a limited range until afternoon, it grew weaker to slip further. It slipped below the 14,800 level briefly before recovering from that point. During the entire day, Nifty did not take any directional cues and continued staying in a limited range. The headline index finally ended with a modest loss of 38.95 points or 0.26 per cent.

From a technical perspective, Nifty managed to keep its head above its 50-DMA at 14,816. To avoid any weakness from creeping in again, the index will have to maintain levels above the 50-DMA on a closing basis. NIFTY PCR across all expiries stood at 1.29. For Monday and for subsequent days, we will see the index trying to break out of the current channel that it was trading in. It would be crucial to see the index’s behavior vis-à-vis the 50-DMA point not just for Monday, but for the coming days as well.


Volatility cooled off a bit with India VIX coming off by 2.60 per cent to 19.7850. Monday’s session is likely to have a stable start to the day. The levels of 14,900 and 14,935 will act as resistance points, while support will come in at 14,780 and 14,700 levels.

The Relative Strength Index (RSI) on the daily chart stood neutral at 51.62; it did not show any divergence against price. The daily MACD was bullish and traded above the Signal Line. A Spinning Top occurred on the candles, signifying indecisive behaviour of market participants.

The pattern analysis shows that the index has been trading in a falling channel; it is trying to break out of this channel. Nifty has halted its pull back just a notch above the 50-DMA.

Regardless of the market taking any directional cues or not, the defensive texture of the market is likely to continue all throughout the coming week. Financials and bank stocks are losing their relative strength against the front-line index. All this means that despite stock-specific outperformances, bank stocks are unlikely to outperform Nifty or the broader market, and the broader markets are likely to perform better than both Nifty as well as banking and financial stocks on relative terms. This makes it all the more important to keep approaching the market selectively and protect profits vigilantly 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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