Trade Setup: Market is consolidating; use any bounce to protect profit now

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The domestic equity market saw a mild correction on Friday. On the last day of the week as well as month, Nifty opened on a mildly positive note. But after trading in a defined range in the initial hours, the index drifted into the negative territory. The headline index continued to drift slowly without much volatility and ended with a mild decline of 28.70 points, or 0.26 per cent.

Nifty failed to move past the 11,300-11,350 zone, which has emerged a stiff hurdle for the near term. Volatility continued to decline, and volatility index INDIA VIX came off 2.16 per cent to 24.1925. With the zone mentioned above acting as a near-term resistance, all up-move will turn weak and make Nifty vulnerable near these levels.

The market is likely to see a tepid start on Monday and the 11,130 and 11,165 levels are like to pose strong resistance, while supports will come in at 11,030 and 10,960 levels.

The Relative Strength Index, or RSI, on the daily chart stood at 60.72. There was a sell signal on RSI three days ago. It is neutral now and does not show any divergence against price. The daily MACD is bearish; as it trades below the signal line. A black body emerged on the candles. Apart from them, no other formation was noticed.

Pattern analysis showed Nifty remains in an upward rising channel and continues to trade above all key moving averages. That said, the index has shown some weakness near the upper edge of the rising channel after it faced resistance at the 11,350 level several times. After an initial attempt to move higher, the index slipped lower, and faced resistance in the 11300-11350 zone.

The market seems to be taking a breather at current levels or seeing a broad-range consolidation, and some mild correction from current levels cannot be ruled out. We recommend approaching the market in a stock-specific manner. Avoid any aggressive long exposure, and keep your positions light. Each up-move, if any, should be used more to protect profit than make fresh purchases.

A cautious view is advised 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 milan.vaishnav@equityresearch.asia)