Trade setup: Market may see some consolidation; defensive stocks may continue to find favour

After spending nearly three months in a falling channel, the Nifty finally made an attempt to break out of it and move higher. The Indian market saw a gap up opening today. Following a strong start, the Nifty maintained its gains, while it traded in a capped range.

The intraday range of the markets was just 60-odd points; this meant that right from the gap up opening, the index successfully maintained all its gains throughout the day. The volatility was practically absent from the session. Finally, the headline index ended the day with a net gain of 184.95 points or 1.24 per cent.

Markets are now posed at a very crucial juncture. What Nifty has witnessed on Tuesday is a breakaway gap. Usually such formations resolve with a continuation on the side of the move. However, the current move has come with a shedding of futures Open interest.

The Nifty current month futures have shed over 2.94 lakh shares or 2.60 per cent in net open interest. Volatility declined as India VIX came off by 1.87 per cent to 19.2400. By far, this remains one of the lowest levels of recent times. This means that though some continued upside may be possible, there are chances that the market may see some consolidation at current levels.

Wednesday may see the levels of 15,150 and 15,210 as likely resistance levels. The supports come in at 14,950 and 14,880 levels.

The Relative Strength Index (RSI) on the daily chart is 60.57. It has marked a new 14-period high, which is bullish. The RSI stays neutral and does not show any divergence against the price. The daily MACD is bullish and remains above the signal line.

A rising window occurred on the candles. This results out of a gap up and usually leads to a bullish continuation. However, the F&O data suggests that the Nifty may show a mild throwback or may consolidate at current levels.

All in all, the gap above and outside the falling channel is an important technical development. Some consolidation at higher levels cannot be ruled out. So long as the Nifty stays above 14,950, the underlying current will continue to stay buoyant. In the immediate short term, there are possibilities of some rangebound moves in the market. There are also mild possibilities of high beta stocks taking some breather. The defensive stocks may continue to find favour going ahead.

On the global front, the US Dollar index stays at its important support. Any pullback from the current levels will have to be closely watched. We reiterate chasing the momentum cautiously, while vigilantly protecting profits at higher levels.

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