Nifty50: Trade Setup: Nifty looks stable, expect select sectoral indices to outperform

The domestic equity market saw a solid bounce on Monday. Nifty not only bounced back sharply, but also stayed in a range that showed hope. Nifty saw a positive start to the day. After starting with gains, the index only got stronger, as the session progressed. It marked the day’s high point in the late morning trade. The second half of the session saw the 50-pack pare some of the gains. It came off the high point, but spent the remainder of the session in a sideways trajectory.

Nifty managed to protect bulk of its gains and finally ended the day with with a net gain of 159.20 points (+0.91 per cent). The session remained important from a technical perspective. It has defended the lower edge of the consolidation range at 17,400. Now the broad range of 17,950-17,400 has got well defined on the chart as a consolidation zone. In this zone, it will be important to watch the 17,800 level, as it can offer resistance as per the Options data.

Volatility continued to decline; India VIX came off 2.76 per cent to 16.7350. For Tuesday and for the immediate short term, it will be important to observe Nifty’s behaviour vis-à-vis the 17,800 level, as it holds the second-highest accumulation of Call Open Interest followed by the 18,000 level.

Tuesday’s session may see a stable start to the day. The 17,750 and 17,800 levels will act as potential resistance points, while supports will come in at 17,650 and 17,580 levels.

The Relative Strength Index (RSI) on the daily chart stood at 63.80; it remained neutral and did not show any divergence against the price. The daily MACD remained bearish and traded below the Signal Line.

A Morning Star Pattern is seen on the candles. However, before calling it a classical Morning Star, we need to understand that since it has emerged near the upper levels or the high point range, it may not be as potent as it should be. Also, it will have its limited potency given the fact that it has occurred during a broad consolidation and not following a decline.

All in all, the inherent strength in the markets remain intact. The 17,400 level has marked itself as an important support point for Nifty. On the higher side, the 17,800-17,950 zone would be a crucial resistance for Nifty to navigate going ahead. The market has been showing sector-specific performances over the past few days. This will continue to persist and we will see specific sectors like banks, autos, auto ancillary, pharma, and select PSE stocks continuing to relatively outperform. While keeping overall exposures at modest levels, a cautiously positive view 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)