Trade Setup: Nifty50 attempts breakout, faces resistance at 15,620-15,675

The Indian market had a strong session as it stepped into the new week. The Nifty50 index ended the day with gains and went on to surge amid weak market breadth. The market saw a flat opening and soon slipped in the negative territory in early deals, but soon recovered to move back in the positive zone. It remained in a gradually rising trajectory and maintained its gains throughout the day.

Volatility continued to decline as well. The headline index made and closed at a new lifetime high with gains of 147.15 points (0.95 per cent).

If we look at the chart in isolation, the setup looks good and buoyant. The market has attempted to take out a double top resistance of 15431 and ended at a new high. This means that so long as the Nifty index is above 15,431, the breakout will remain in place. However, we cannot also ignore the fact that the market breadth has remained weak.

Nearly 65 per cent of the gains over the two days have come from Reliance and ICICI Bank. This keeps the participation weak.

Another more concerning factor is the India VIX index, which declined 2.97 per cent to 16.8850. It remains at one of its lowest levels of the recent past.

The market may see a stable opening for the day. Tuesday is likely to see the levels of 15,620 and 15,675 acting as resistance points. Support comes in at 15,500 and 15,410.

The Relative Strength Index (RSI) on the daily chart is 69.23; it has made a new 14-period high, which is bullish. RSI, however, remains neutral and does not show any divergence against the price. The daily MACD Is bullish and stays above the signal line.

The pattern analysis shows the Nifty50 gauge has attempted a breakout from the double top resistance point of 15,431, which also was the previous lifetime high point for the market. This breakout will remain in force so long as Nifty50 is above this point.

We reiterate that despite the breakout attempt, this is the time when we will see the relative strength of defensive sectors like FMCG, consumption, pharma and IT improving once again. We will find these pockets performing equally or better than high beta economy facing stocks.

We recommend continuing to chase the momentum cautiously and keep new purchase highly selective, and keep overall leveraged exposures curtailed and limited.

(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)