//Trade setup: Any major upside unlikely; mkt prone to profit taking

Trade setup: Any major upside unlikely; mkt prone to profit taking

Friday’s session on Dalal Street saw short covering in the second half of trade, which took the market into the green zone, even though the indices ended the week on a flat note. After seeing a modestly positive start, the market slowly drifted and pared its gains by late morning trade.

The indices drifted further into the negative zone and spent some time in a defined range. It witnessed a sharp recovery from the lows of the day following some short covering. The headline index went on to end the day with a gain of 46.75 points or 0.40 per cent.

The coming week will be a truncated one, and no major upsides are expected. The market is likely to see a muted start on Monday and upsides, if any, will face a very stiff resistance in the 11,710-11,760 zone. The volatility, though in a moderate form, has returned with the VIX inching slightly higher to end at 20.9975.

Milan chart

Nifty is likely to see the 11,710 and 11,760 levels pose a stiff resistance to any upsides in it. Supports should come in much lower at 11,550 and 11,480 levels.

The Relative Strength Index or RSI on the daily chart stood at 62.3328. It does not show any divergence against price over the previous 14-day period. However, when visually inspected, it is negatively diverging against the longer price action. The daily MACD is bearish and it is trading below the signal line.

Bollinger bands are currently 38 per cent narrower than normal. Though they do not suggest any definite price move, but narrower the bands get, the more prone Nifty will be to sharp moves on either side.

The early morning trade is likely to show volatility in IT stocks taking cue from the earnings of TCS and Infosys. We expect the action to remain positive in the defensive sectors. Broadly speaking, the price action is likely to remain favourable in a few sectors and the session is likely to remain highly stock specific.

Unless the market shows some cleansing in the form of a mild correction, it would remain vulnerable to profit taking at higher levels. Maintain a highly cautious outlook on the market for the day.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)