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Trade Setup: Nifty showing no signs of a let-up; short-term support at 13,800

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In a narrow-ranged session on Friday, the domestic equity market stepped into the new year on a quiet note, consolidated in a strong way and ended the day with a modest gain.

After a positive start, headline index Nifty stayed in the green throughout the session. However, the market remained within a very limited and defined range for the entire day. It showed some strength in the second half of the trade, but the last hour saw some paring of gains which kept the overall gains under check. Nifty closed on a modestly positive note, gaining 36.75 points or 0.26 per cent.

As we step into the next session, we need to keep two contradictory things in mind. One, Nifty stays highly overextended on the short-term charts and is due for some ranged consolidation, if not correction, in the immediate term. Second, on the other hand, the market is not showing any signs of a let-up. Futures data shows that Nifty January series added over 6.07 lakh shares, or 5.15 per cent, in Open Interest, indicating the underlying buoyancy. Volatility also declined sharply as the India VIX declined by 7.28 per cent to 19.5600.

ET CONTRIBUTORS

Monday’s session is likely to have a quiet start to the day again. The levels of 14,050 and 14,110 will act as potential resistance points while supports will come in at 13,910 and 13,860.

The Relative Strength Index (RSI) on the daily chart is 73.18. It stays mildly overbought and continues to show a bearish divergence against price. The daily MACD is bullish and remains above the Signal Line. A spinning top occurred on the charts. This requires us to continue approaching the market with caution as we follow the current

momentum.

The pattern analysis of the daily chart shows that after breaking out from 12,000, Nifty has intermittently formed a base; first at 13,000 and then at 13,800 levels. So, in the current process, if any corrective move occurs, then the first short-term support exists at 13,800.

All and all, there is not dispute to the fact that the undercurrent in the market stays extremely strong. However, if any ranged consolidation happens at either current or slightly higher levels, it should not come as a surprise as it is overdue. We recommend continuing to follow the momentum by trailing stop losses in the strictest possibly ways. All profits at current and higher levels should be very vigilantly protected.

(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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