trade setup: Trade Setup: Broader markets likely to outperform Nifty

While digesting initial reactions to the FOMC outcome and while stepping into a new Samvat, the Indian markets ended the short Mahurat Trading Session on a positive note. The session remained largely in line with what typically such symbolic and token sessions are meant to be. The Nifty opened higher, traded in a range, and largely maintained all its gains throughout the short session. Without much volatility, the markets continued to witness buying in select pockets. The headline index ended the Mahurat session with a net gain of 87.60 points (+0.49%).

The market breadth remained positive and stable throughout the session.

Further, on a more important note, the markets have reacted positively to tapering of bond purchases without much tantrums, in line with the global markets. The Indian markets will open on Monday with a gap of holidays and will adjust to global market trade setup which is stable to positive. For us, going ahead, it will continue to remain important to watch Nifty’s price action vis-à-vis the levels of 18000. For the technical pullback to continue, it will be important for the Nifty to move past this point and also keep its head above 18,000 levels.

Volatility decreased and India VIX came off by 2.34% to 15.7475. Monday is likely to see the levels of 18,000 and 18,090 acting as potential resistance points. The supports come in at 17850 and 17810 levels. The Relative Strength Index (RSI) on the daily chart is 50.82; it is neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line.

It would be improper to analyze the candles; any short session will have smaller candles and reading their formations without this perspective may lead to incorrect interpretations. So, candles, in any short sessions like this, are best ignored.

All in all, the Nifty has high possibilities of inching higher; through the recent technical pullback, it has established the 50-DMA as a major support on a closing basis. The 50- DMA stands at 17673. With midcaps rolling inside the leading quadrant of the Relative Rotation Graph (RRG), there are greater chances of the broader markets starting to relatively outperform the frontline Nifty. In any case, it would be of paramount importance to stay with the right stocks; right stocks would mean the ones with either better or at least improving Relative Strength against the broader markets. We can expect stocks from auto, midcaps, financial services, PSE and pharma outperform on a selective basis.

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