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Market outlook: Nifty50 likely to see profit taking at higher levels

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Market displayed signs of classic consolidation, as it failed to sustain at the high point of the day. On expected lines, the higher levels saw some profit taking, as the Nifty pared nearly 50 points from the high point of the day. It ended with a modest gain of 20.65 points or 0.20 per cent.

If we discount the outperformance of Nifty IT Index, which also came off significantly from the high point of the day, Nifty would have ended with losses.

As we enter Tuesdays trade, we expect this consolidation to continue to persist. Though downsides, if any, may be limited, the zones of 10,610-10,640 will continue to pose good resistance to any upmove in the immediate short term.

Tuesday will see the levels of 10,610 and 10,650 acting as immediate resistance area. On the downsides, the Nifty may find support near 10,540 and 10,510 levels.

The Relative Strength Index (RSI) on the daily chart is 63.8164, and it has marked a fresh 14-period high once again, but remains neutral to the prices showing no divergences.

Daily MACD stays bullish while trading above its signal line. A spinning top, indicative of indecisiveness of the market participants occurred on candles. Apart from this, no major formations were observed.

Pattern analysis shows that despite evident display of buoyant undercurrent, Nifty has not been able to move past the important pattern resistance area of 10,610-10,640 zones. This is the upper area of the broad trading range Nifty had developed over past couple of months.

Fresh shorts were also seen being created as the Niftys future shed nearly its entire premium. We expect such consolidation to continue to exist in the immediate short term.

We also expect volatility to persist owing to expiry of the current derivative series. There are high probabilities that market continues to witness profit taking bouts from higher levels. We reiterate to avoid creating any major shorts. It is further advised to continue to utilise volatility and downsides to make select purchases with any downsides or profit taking bouts that the market may offer. While keeping overall positions moderate, cautious view is advised for the day.

STOCKS TO WATCH: Fresh shorts were seen being added in IDFC Bank, JSW Steel, South Indian Bank, DHFL, ITC, Wipro, ICICI Bank, SAIL, DISH TV, ONGC, HDFC, Tata Global and NCC.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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