Nifty call: Tread with caution as futures contract seems to consolidate

Nifty 50 November Futures (11,907)

The November futures of the Nifty 50 index seems to be in a consolidation phase after a good rally that began in the first week of October. The key level within which the contract is trading are 11,835 and 12,070. The 21-day moving average is at 11,845, which along with 11,835 could act as a support band.

Market breadth of the Nifty 50 index is almost equally split as the advance-decline ratio is 24-26 now. Even though there is not much movement in price, the volatility index has significantly shot up to 16 (up by 6.2 per cent). In general, high volatility is associated with a bearish bias. Additionally, the moving average convergence divergence indicator in the daily chart is in negative territory.

Among the sectoral indices, the Nifty PSU bank index is the top performer, gaining 1.5 per cent today whereas top losers are the Nifty auto index and the Nifty FMCG index, each losing half a percentage point.

Though there are some indications of weakness in November futures contract, the overall trend remains bullish. As long as the contract holds above 11,835 the possibility of a trend reversal is low. But the futures is trading near a critical level which also happens to be the middle of the range between 11,835 and 12,070. Hence, traders should remain on the sideline until either of the range limits are broken. However, traders with higher risk appetite can follow a range trading strategy i.e. buy at the bottom of the range and sell at the top with a tight stop-loss.

Strategy: Tread with caution as futures contract seems to be consolidating

Supports: 11,835 and 11,761

Resistances: 12,000 and 12,070

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