Trade Setup: Nifty might stage a minor pullback; volatility to increase

On the weekly options expiry day, the market behaved exactly along the anticipated lines and ended the day with a deep cut. In the previous technical note, it was mentioned that in all probability, the level of 12,000 will become an intermediate top for Nifty. Unless it moves past that, the market is staring at a profit taking bout at current levels.

On Thursday, Nifty opened on a modestly positive note but marked the day’s high in early seconds of the trade before slipping into the negative zone. Weakness intensified in the second half of the session. While breaching the 11,700 level, Nifty ended the day with a net loss of 290.70 points or 2.43 per cent.

As the market ended near the low point of the day, some follow-up weakness in the market cannot be ruled out from a technical perspective. Though some mild pullback can also be expected, the broader setup remains weak.


Thursday’s session marked the level of 12,000 as an intermediate top. Unless the market move past 12,000 again, any sustainable up move is unlikely and each move on the higher side will invite profit taking bouts at higher levels. Volatility surged as India VIX shot up by 9.14 per cent to 22.0575.

Friday’s session is likely to see the levels of 11,750 and 11,810 as the resistance points, while support would come in at 11,610 and 11,565 levels. The RSI on the daily chart is 55.10; it stays neutral and does not show any divergence

against price. The daily MACD is still bullish and trades above the Signal Line.

A large bearish engulfing candle emerged on the charts. This candle marks the level of 12,000 as a potential top. Since it appeared near the resistance point following a significant up move, it also potentially disrupts the present up move.

Overall, given the near-vertical nature of the decline, some minor pullback cannot be ruled out. While avoiding high-beta stocks, focus is recommended on low-beta defensive stocks which will offer greater resilience since volatility is likely to increase in the near term.

While avoiding aggressive purchases, a continued cautious approach is suggested 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 [email protected])

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