Trade setup: No consensus on Nifty direction; 50DMA remains key hurdle

This makes the market more vulnerable on the higher side.

Friday’s session on Dalal Street started with the surprise rate cut by RBI, which advanced the June monetary policy meeting to bring down the repo rate by 40 basis points. The market remained rangebound in initial trade as the markets awaited RBI’s press conference. But the rate cut did not enthuse the market, and a bleak growth outlook that the central bank presented further depressed sentiment.

Following a spike, Nifty began its slide and slipped below the 9,000 mark. The remaining part of the session saw some recovery from lower levels. However, the trading range remained capped and limited in its extent. At the end, the headline index ended the day with a net loss of 67 points, or 0.74 per cent.

The previous session had seen Nifty form a lower top and bottom on the daily chart. Volatility also declined modestly, as the volatility index, INDIA VIX, declined 1.84% to 32.37775.

Nifty itself has continued to close below the 50-DMA, which currently stands at 9,067. Therefore, the 50-DMA continues to remain an important level to observe on a closing basis, as it has acted as a resistance point over the past couple of days.

On Tuesday, when Nifty opens after Monday’s trading holiday, the 9,095 and 9,130 levels are likely to act as important resistance points, while supports will come in at 9,000 and 8,935 levels.

The Relative Strength Index (RSI) on the daily chart stood at 46.54. It remains neutral and shows no divergence against the price. The daily MACD remains bearish as it trades below the signal line. The PPO ( percentage price oscillator) remains positive. The candles formed a Spinning Top again as they showed lack of directional bias and a consensus on either side. Spinning tops are formed out of a session with small real bodies, with little difference between the open and closing prices.

Pattern analysis showed after falling out of a Rising Wedge, Nifty is drifting in a small falling channel. The index also continues to face resistance at the 50-DMA, which is acting as a key hurdle on a closing basis.

All in all, Nifty is showing lack of consensus and conviction on any direction. This makes the market more vulnerable on the higher side. Even if the Nifty sees some upside momentum, it is likely to face stiff resistance at higher levels and may remain prone to profit taking. For the upside momentum to sustain on the higher side for some time, Nifty will have to move past its 50-DMA and close above that point. One must adopt a cautious approach 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)