Downturn in sight for Nifty50, MidCap Select indices; here's how to trade

Nifty 50 Index Analysis:

When examining the Nifty 50 Index, currently trading in the overbought zone, technical indicators such as MACD, RSI, and Stochastic suggest it is challenging to recommend initiating fresh long positions at the current market price. The recent sharp rally has led to expectations of a pullback, indicating potential underperformance in the near term.

On the downside, support levels are anticipated around 24,000 and 23,800, with a close below 23,800 likely to trigger fresh short positions.If this support level fails, the next supports are at 23,400 and 23,200. For those holding short-term long positions, maintaining a stop-loss at 23,800 on a closing basis is advisable.

 

Given the overall downtrend expected on the charts for this week, the best trading strategy would be to sell near resistance levels and book profits.

Traders should wait for the index to approach the mentioned support levels before considering new long positions. Resistance for this week is projected between 24,400 and 24,500.

In summary, the Nifty 50 Index appears poised for a correction, and the prudent approach involves selling near resistance and waiting for the index to find support before re-entering long positions. This strategy helps manage risk and aligns with the anticipated market movement for the coming week.

Nifty Midcap Select Index Analysis:

The Nifty Midcap Select Index is currently experiencing upward momentum, but there are signs of potential risk due to a negative divergence on daily charts. This divergence suggests that despite the index's rise, underlying momentum is weakening, making it a risky period for initiating new long positions.

The index faces a strong resistance level at 12,800, which is likely to halt its current upward trajectory. Given the technical indicators, which are in the overbought zone, fresh buying is not advisable at this time. The best trading strategy in this context is to sell on rises or book profits in the index and its constituents.

A pullback is expected in the near term, providing a better entry point for traders and investors. Key support levels to monitor are 12,000, 11,800, and 11,550. These levels are potential targets where the index may stabilize before resuming any upward movement.

In summary, traders should adopt a cautious approach, focusing on selling during rises and waiting for the index to correct to the aforementioned support levels before considering new long positions. This strategy will help mitigate risk and capitalize on potential price corrections in the near term.

(Disclaimer: Ravi Nathani is an independent technical analyst. Views are his own. He does not hold any positions in the Indices mentioned above and this is not an offer or solicitation for the purchase or sale of any security. It should not be construed as a recommendation to purchase or sell such securities.)