Nifty: Trade Setup: After strong breakout, Nifty has some more room on upside

While moving precisely on the expected lines, the Indian equity market staged a strong breakout, as Nifty has come near the 17,000 mark while ending once again at a new lifetime high. The market opened on a positive note. This saw Nifty open higher; it only got stronger as the day progressed. The index saw a steady rise throughout the day, as it kept on making incremental highs.

The market showed no sign or any intention to correct or retrace at any level. It managed to end near the high point of the day while posting robust gains of 225 points, or 1.35 per cent.

The market has staged a strong breakout, and in the process, dragged its support levels higher to the 16,650-16,700 zone. The surge in the market was secular as it was spread across sectors. Bank Nifty, which was a laggard until now, also ended up strong, as it started to play catchup on the expected lines.

Volatility stayed nearly unchanged with INDIA VIX losing just 0.65 per cent. In the event of any consolidation, the 16,650-16,700 zone will now act as an immediate short-term supports for the market. The current technical setup suggests there are increased possibilities of Nifty testing the 17k mark.

Tuesday’s session may once again see a positive start, and the 16,690 and 17,045 levels may act as immediate likely resistance points. Supports should come in at the 16,865 and 16,810 levels.

The Relative Strength Index (RSI) on the daily chart stood at 78.99; it has marked a new 14-period high, which is a bullish signal. The RSI is now strongly overbought, which shows the inherent strength of the market. It remains neutral and does not show any divergence against the price. The daily MACD remains bullish and stays above the Signal Line.

A Rising Window emerged on the candles. This was the result of a gap and with the Nifty closing near its high point. Such formations have buoyant implications and usually resolve with the continuation of the current bounce.

All in all, the current technical setup suggests there is still some room for Nifty on the upside. The index may test the 17k level; and then may see some profit-taking or consolidation in a range-bound manner. If the market goes in for some consolidation, sector-specific outperformance will continue. We recommend chasing the market momentum and keeping a close eye on the pharma, bank and consumption stocks as these groups may continue to show relative outperformance in the immediate near term. A positive outlook is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)