Trade setup: Nifty50 may extend weakness; use any dips to buy
The corrective move, which was imminent since the past couple of sessions, took place in Thursdays trade. Though the midcaps continued to outperform the frontline indices, the NSE benchmark Nifty retraced and ended the day 101.50 points or 0.89 per cent down.
The market is witnessing a throwback after it gave a breakout and advanced above the previous high level of 11,171.
As we approach Fridays session, we expect minor corrective moves to persist. The indicators on the daily chart continue to remain little overstretched, and this is likely to keep Nifty under minor correction with the levels of 11,170 acting as support in any case.
Such rangebound moves, or minor correction, if any, would be healthy for the market going ahead.
Friday will see the levels of 11,290 and 11,335 acting as immediate resistance area. Supports may come in lower at 11,170 and 11,130 zones.
The Relative Strength Index (RSI) on the daily chart is 64.9763. RSI has just crossed below 70 from a topping formation and this is bearish. No divergence against the price or failure swings was seen on RSI.
The daily MACD stays bullish while trading above its signal line. A big black candle emerged. It remains important as it has emerged near the high price area when the Nifty was overbought. This may continue to stall the up move for some more time.
The pattern analysis makes things simple. The Nifty which broke out when it moved past 11,170, is seeing some retracement and might see some throwback happening.
With the level of 11,170 continuing to act as support, such retracement may lend Nifty some more strength over coming days.
Overall, we expect the market to remain under minor corrective pressures on Friday. Up moves, if any, will continue to find overhead resistance at higher levels.
We recommend keeping exposures at modest levels and continue to utilise dips, if any, to make select purchases.
Unless the Nifty moves towards fresh highs, just like making purchases with all dips, it would be equally important to protect profits at higher levels.
STOCKS TO WATCH: Fresh shorts were seen being created in stocks like PNB, ICICI Bank, ONGC, Tata Motors, Hindalco, PTC, State Bank of India, Axis Bank, Tata Power, Bharti Airtel, DLF, Kotak Bank, ITC, Vedanta and HDFC.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)