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Trade setup: Record low VIX, yearend volume drop only risks to bullish Nifty

In the previous note, we had mentioned Nifty completing a throwback and setting the stage for a technical rebound. Friday’s session remained much stronger and better than expected, as Nifty staged a smart pullback to end the day with decent gains.

After witnessing a positive start to the day, the index maintained its gains for the entire session. The trend remained steady throughout the day and got stronger towards the end. The headline index went on to end the day with a net gain of 119.25 points, or 0.98 per cent.

Despite a buoyant pullback, the market is unlikely to see a runaway rise in the coming days. Nifty will face stiff overhead resistance in the 12,300-12,350 zone and may find itself vulnerable at higher levels. The momentum has not been as strong as required, and India VIX remains at a multi-year low point and may see some bounceback from its current level. The momentum/ up-move, if any, needs to be chased cautiously.

On Monday, Nifty is likely to see a stable start to the day. Nifty’s action against the 12,300 price level will be important to watch. Another resistance point comes at 12,350. Supports come in much lower at 12,180 and 12,100 levels.

The Relative Strength Index (RSI) on the daily chart stood at 61.61; it should remain neutral over the 14-day period and does not show any divergence against price. The daily MACD is bullish and trades above the signal line. However, it is sharply narrowing its trajectory. Apart from the white body that occurred, no significant formations were seen on the candles.

Pattern analysis of the daily chart shows Nifty achieved a breakout above the 12,103 levels, but halted its rally near 12,300. Following this, the index suffered a strong throwback, which took it back to the levels from where it broke out early. A technical rebound was witnessed after that price action.

The primary trend of the market remains steady as of now, and there is nothing incredibly bearish on the charts so long as Nifty manages to keep its head above 12,100 levels. However, the multi-year low level of Volatility Index – INDIA VIX – and the holiday season resulting in low volumes and some loss of momentum is likely to keep Nifty vulnerable at higher levels. A cautious chase of momentum 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 [email protected])

Source: Economic Times