Trade setup: Nifty resistance seen at 15,850-15,900 levels; protect profit at higher levels

In a strong short covering-led pullback, the Indian equity markets had a very resilient day, and it grossly outperformed the weak global trade setup. The Nifty saw a gap down opening following weak global cues. Even though the market opened lower, the levels formed the intraday low for the markets.

After opening levels led to formation of the intraday low point, the remaining session saw the Nifty recovering from the lower levels. The index rose over 250 points from the low of the day to not only turn positive, but also close in the positive territory. The Nifty ended with a net gain of 63.15 points or 0.40 per cent.

From a technical perspective, the Nifty bounced off from 15,450, the point from where it had originally broken out in the session on Friday. Monday’s session saw the Nifty showing a fierce short covering following a gap down opening. All this points towards the support levels of 15,450 holding out as of now. The volatility continues to remain at lowest levels despite some increase. India VIX rose by 1.77% to 15.0600.

The zone of 15850-15900 continues to post a stiff resistance area for the Nifty for the immediate near term. The support exists at 15,670 and 15,510 levels. The trading range for the Nifty has technically gotten wider following the action over the past couple of sessions.

The daily RSI is 63.01; it is neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line. A large white body emerged. This showed the directional consensus that prevailed throughout the day.

All in all, as long as the Nifty does not move past the 15,850-15,900 zone convincingly, it continues to remain vulnerable to sell-offs at higher levels. Also, the volatility continues to remain towards its lower end; at the levels witnessed only in the beginning of 2020. All this hints that despite strong short covering-led up moves, this is not the time to get complacent. It is important that we continue protecting profits at higher levels.

It is strongly recommended that unless the NIFTY is convincingly above its previous highs, one should not get carried away by the pullbacks and continue to approach the markets cautiously while protecting profits vigilantly at higher levels.

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