Markets

Trade setup: Stay away from shorts as long as Nifty stays above 10,800 level

The equity market had a buoyant start to the week, as NSE benchmark Nifty ended the day with a gain of 80.25 points or 0.74 per cent. Mondays session remained technically important, as the Nifty officially reversed the negative breakdown that it suffered a couple of days back from a large symmetrical triangle formation.

Further to this, with the Mondays upmove, the index has further attempted to move past the falling trend line pattern resistance.

As we approach Tuesdays session, there is a high probability that Nifty will see an upward breakout from the pattern resistance. A modestly positive start to the session is expected, and even if market consolidates at higher levels, it will do so with a positive bias.

The levels of 10,875 and 10,930 will play out as immediate resistance levels for Tuesday. Supports may come in at 10,810 and 10,760 zones.

The Relative Strength Index (RSI) on the daily chart is 58.5325. It does not show any divergence against the price, but it has marked a fresh 14-period high, which is bullish.

Daily MACD has also shown a positive crossover. It is now bullish, as it trades above its signal line.

If we look at the pattern analysis, it suggests that the Nifty has finally attempted to move past the falling trend line pattern resistance. This falling trend line started from the high of 11,170 and joined the subsequent lower tops. If the market manages to hold itself up above the 10,850 mark, we will see higher chances of this culminating into a breakout with the Nifty inching higher.

Overall, Mondays upmove was much in line with what was expected. Some technical indicators remain slightly overstretched, which might make the market consolidate at higher levels. Still, the underlying current remains bullish.

The Bollinger bands remain nearly 48 per cent narrower-than-normal. This further increases the chances of volatility increasing with sharp moves in prices over the coming days.

Even if Nifty consolidates at the higher levels, we would strongly recommend refraining from creating shorts as long as the Nifty stays above the 10,800 mark.

Continue to make select purchases with each consolidation. Overall, a positive outlook is advised for the day.

STOCKS TO WATCH: Fresh long positions were seen being built in stocks like Asian Paints, YES Bank, Vedanta, Hindustan Zinc, Reliance, Tech Mahindra, Sun Pharma, Larsen & Toubro, Bajaj Finserv and Kotak Bank.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

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