12,000-12,035 strong resistance points for Nifty

By Prarit
12,000-12,035 strong resistance points for Nifty

A blog post by The Wealth Generating a strong resistance point for Nifty. The domestic equity market experienced a lot of volatility on Monday. It was also impacted by external factors that impacted both the trading environment as well as the sentiment. Mumbai experienced a nearly city-wide electricity failure that even impacted the NSE in the second half for a very brief time.

The market opened on a strong note and after marking high in the early minutes of the trade, saw itself paring all those gains. After dipping in the negative in the late afternoon trade, the market recovered to crawl back inside the positive zone. However, while wiping out most of the gains, Nifty ended the day with a marginal gain of 16.75 points or 0.14 percent.

If we discount the external factors that might have impacted the trade, Nifty has shown signs of fatigue with a higher intensity from the technical perspective.

F&O data suggests that not only the levels of 12,000 saw a significant amount of Call writing throughout the day, the futures also saw some shedding of net Open Interest by the end of the session. A weaker dollar may prevent any major downside in the market but Nifty consolidating in a defined range cannot be ruled out. The volatility index, India VIX, surged by 3.67 percent to 21.1275.

Tuesday’s session may see a jittery start to the day with the levels of 12,000 and 12,035 acting as strong resistance points, while support will come in at 11,850 and 11,810 levels.

The Relative Strength Index (RSI) on the daily chart is 68.46; it stays neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above the Signal Line. Apart from a black body that occurred, no other significant formations were noticed on the candle.

Overall, we recommend avoiding any momentum chase even if the Nifty attempts any up move fueled by liquidity. It would be rewarding from the risk-reward point of view if markets are approached with a continued focus on defensives like pharma, consumption, and non-discretionary segments.

Also, 12,000 is likely to pose resistance to all up moves that may happen from now on. While guarding profits vigilantly at higher levels, a cautious approach to the market is advised for the day.

Nifty Forms Doji (Indecisive Candle)

Nifty50 on Monday climbed for the eighth session in a row, but that didn’t inspire confidence as the index gave up most of the day’s gains.

The day saw the index erase gains from a swing high of 12,022, before adding up marginally. It was all reflected in a Doji candle that got formed on the daily chart, which suggested indecisiveness among traders at higher levels. Weakness may creep in now, warned analysts, who see support for Nifty at 10,850-10,790 levels.

“As Nifty50 saw a mild selloff from the critical psychological resistance, our twin momentum oscillators generated a ‘sell’ signal. We expect either a sideways movement or a dip towards 11,800 now. A slightly bigger correction can be expected if Nifty50 closes below the 11,790 level.

Sometimes, the formation of such wave patterns signals a reversal of the ongoing trend after confirmation. Though Nifty50 has stretched its uptrend into the eighth consecutive session, there is still no confirmation of any reversal pattern at the highs. We expect a minor consolidation for one or two sessions.

“If the bulls fail to take the index beyond the 11,970-12,000 resistance zone, it will trigger profit booking and drag Nifty lower to 11,800-11,750 levels. However, a sustained trade above the 12,000 level will resume the uptrend and take the index higher to 12,100-12,250 levels.

Independent analyst Manish Shah said momentum oscillator MACD is now in the buy mode. “The RSI is standing above 60 and the ADX has started moving above 20. Often ADX moving above 20 is a sign that the index will see a fast move on the upside. The previous decline has been retracted fully and the market breadth is good. As long as Nifty holds above the 11,800 level, the underlying tone stays bullish.