Home Market Trade setup: Nifty must top and hold 100-DMA to sustain rally

Trade setup: Nifty must top and hold 100-DMA to sustain rally

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In the market note for Mondays session, it was mentioned that there were a couple of signs on the short-term charts that were pointing towards a technical pullback.

The market saw a shaky start, as it opened flat on Monday, but soon came under a bearish grip. The NSE benchmark Nifty lost ground rapidly and even drifted below its immediate low briefly.

However, the second half of the session saw a sharp recovery on the back of heavy short covering. The index recovered over 180 points from the days low and settled with a gain of 77.85 points or 0.71 per cent.

Wednesday will see market opening after a gap and it will adjust itself to the global stocks. With no major negative cues and with market ending near the high point of the day on Monday, we expect a stable opening and expect the pullback to continue at least in the initial trade.

The levels of 11,043 (the 100-DMA) and 11,095 are likely to act as immediate resistance area for Nifty. Supports may come in at 10,950 and 10,910 zones.

The Relative Strength Index (RSI) on the daily chart is 37.6834 and it remains neutral showing no divergence against the price. However, it is seen taking a pattern support and inching higher. The daily MACD trades below its signal line. A candle with a long lower shadow occurred. This also resemble a not-so-classical hammer. It is important as it occurred near the pattern support area. It can potentially mark a bottom and form a base for a potential reversal.

Overall, it is important to note that the kind of pullback that we saw on Monday was long overdue, as the market were oversold on the short-term charts. However, the pullback has been very much because of heavy short covering from the lower levels.

For the pullback to sustain, it would be important for the market to move past and close above the 100-DMA.

Further, it also needs to move past the important pattern resistance level of 11,170. Only after this, the market will confirm this formation of a base.

Until this happens, we need to tread this market with a caution with an underlying positive bias. Continuing to remain moderate on exposures is advised.

STOCKS TO WATCH: Stocks of LT Foods, L&T Infotech, NCC, Tata Communications, Adani Power, State Bank of India, IDBI Bank, IDFC Bank, Engineers India, ITC, RECELTD, Eros International, Ashok Leyland, Vedanta, Hindustan Zinc, Tata Steel and NTPC are expected to remain resilient during Wednesdays session.

(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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