Nifty: Trade Setup: Nifty50’s up move may continue; 18130-190 levels to act as resistance

Indian equities extended their up move on the first day of the week; however, that wasn’t without initial hiccups. Following a strong start to the day, Nifty50 rapidly pared its gains and slipped into the negative in the early minutes of the day. The headline index spent trading in the negative territory throughout the morning trade; it slowly recovered from its lows to crawl inside the positive territory. The markets got stronger as the day progressed and Nifty50 moved past the crucial resistance level of 18000 and managed to keep its head above that point. The benchmark index finally ended the day with a net gain of 151.75 points (+0.85 per cent).

Unless there are any overnight negative cues, the markets have set a solid stage for the continuation of the up move. Solid reversal candles are seen near the support levels validating a base; this is supported by a breakout in the lead indicators, ahead of prices moving past the pattern resistance. The weekly options data also show heavy Put OI addition at 17900 making that level potential support in the near term. On the upper side, the highest Call OI has shifted to 18500. Volatility spiked as India VIX surged by 3.76 per cent to 16.3400.

Tuesday is likely to see the levels of 18130 and 18190 acting as resistance points. The supports come in at 17980 and 17900 levels.

The Relative Strength Index (RSI) on the daily chart is at 55.29; it is seen breaking out from a falling trend line resistance. Although the RSI is neutral against the price, the pattern analysis of this indicator shows that a breakout has occurred on RSI ahead of the price breakout which is bullish. The daily MACD is bearish and stays below the signal line.

Nifty50 formed a Hammer candle on the daily chart. This occurred near the support zone of 17900-18000. The formation of such a candle which has a long lower shadow has the potential to act as a major reversal candle and may result in the continuation of the up move. However, this will require confirmation on the next trading session; Nifty50 will also have to keep its head above 18000-level.
The pattern analysis shows that Nifty50 is trying to push itself above the falling trend line pattern resistance. This trend line is drawn from the high of 18600 which subsequently joins the lower high near 18350. Just like the previous session, we will see the broader markets continuing to relatively outperform the frontline Nifty50. However, apart from the midcap universe, we can expect select outperformance from pockets like Auto, Oil and Gas, Pharma, PSE, and select banking space. We recommend avoiding shorts and using all consolidation and minor downsides to make selective purchases. 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 (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)