Trade Setup: Watch Nifty’s behaviour against 14,750-14,800 zone; protect profits at higher levels

Following three days of corrective action in domestic equity market, Friday was less volatile. On anticipated lines, the market had a technical pullback and ended the day in green.

Headline index Nifty had a positive start to the day given the favourable trade setup. Though the opening gains were given up in the first hour of trade, the remaining part of the session was spent with the index staying in an upward rising trajectory. Though the market came off a bit from its highest point, the index ended the day with a net gain of 182.40 points or 1.27 per cent.

The domestic market will open on Tuesday following an extended weekend with Monday being a trading holiday on account of Holi. The current trade setup, unless damaged, will lead to a gap-up opening on Tuesday. However, it is important to note that the expected quantum of the gap-up opening will see Nifty opening near its crucial resistance level of 50-DMA at 14,764. The opening levels and the behavior of the index against the zone of 14,750-14,800 will be crucial to watch.

Volatility declined as India VIX came off by 9.02 per cent to 20.6500. Tuesday’s session is likely to see the levels of 14,650 and 14,700 acting as resistance points, while support will come in at 14,450 and 14,410 levels.

The Relative Strength Index (RSI) on the daily chart was neutral at 43.52 and did not show any divergence against price. The daily MACD was bearish and stayed below its Signal Line.

The pattern analysis shows the index has a pattern support near its immediate low point near 14,250 levels. This exists in form of a falling trend line of a small declining channel that the index has formed. On the move up, it has its immediate resistance at 50-DMA on a closing basis.

The Indian equities are set to see higher opening in Tuesday’s trade. However, with all likelihood that the opening would be near the important resistance levels, there are also possibilities of some profit-booking at higher levels. It is suggested that the initial strong opening, if at all it happens, should be utilized more for protection of profits at higher levels. Fresh purchases, if any, should be made on a highly selective note as the market is likely to continue exhibiting a stock-specific setup. A selective and cautiously positive approach 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)