Trade Setup: Expect a steady start on Monday; financials, consumption, IT stocks may outperform


After consolidating for two days, the domestic equity market has attempted to break above the crucial support level again as it staged a strong up move on Thursday and ended the day with decent gains. Nifty saw a gap-up opening and got stronger as the day progressed.

The index stayed in a capped range, but it was able to maintain its opening gains and even build on it further. Although the market stayed within a defined range, the volatility was near-absent in the previous session. After trading steady for the whole session, the headline index ended with net gains of 169.40 points or 1.51 per cent.

On Monday, the Indian market will open by adjusting to the global trade setup as Friday was a trading holiday in India on account of Gandhi Jayanti. From a technical perspective, a follow-up move may happen.

Also, the index has ended just near the crucial double top resistance zone of 11,400-11,430. Any move beyond 11,450 would mean yet another strong attempt to move and break above this crucial resistance zone. F&O data points towards adding of fresh longs in the market. Volatility dipped as the India VIX came off by 6.04 per cent to 18.3500.

A steady start to the day is expected tomorrow. Monday’s session will see the levels of 11,450 and 11,565 acting as resistance points, while support will come in at 11,350 and 11,235 levels.

milan-graph

The Relative Strength Index (RSI) on the daily chart is 54.67; it has continued to mark a new 14-period high which is bullish. RSI, however, also remains neutral as it does not show any divergence against price. The daily MACD is bearish as it stays below the Signal Line. However, the sharply narrowing slope of the histogram shows this indicator

moving towards a positive crossover in the coming days.

A rising window occurred on the candles. This results out of a gap on the upside and usually resolves with a continuation of the uptrend. However, this would need confirmation on the next trading bar.

Pattern analysis shows the zone of 11,400-11,450 as an area which sees a confluence of two pattern resistance points. This zone has the double top resistance at 11,430 and near 11,450, it has a falling trend line that joins 11,800 and subsequent lower tops. This zone, therefore, remains a crucial area for Nifty to navigate.

A close examination of F&O data shows there is an underlying buoyancy in the market, at least in the near term. This is evident not only in the addition of Open Interest in Puts at 11,400 and below, but Nifty current month futures have also seen addition of net Open Interest by over 2.83 lakh shares or 3.14 per cent.

Regardless of the above figures, which indicate underlying buoyancy in the very near term, we recommend staying highly vigilant at higher levels until the zone of 11,400-11,460 is taken out convincingly and the market stays above that. We expect some high beta performers like financial stocks attempting some outperformance along with

defensives like consumption and IT. A cautiously positive outlook is advised for the day.


(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)





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