Trade Setup: Bank Nifty plays catchup; low volatility should keep market upbeat


With strong market breadth, domestic equities resumed their rising streak and ended Tuesday’s session with decent gains. The market saw a positive start to the day on the expected lines. However, after opening positive, Nifty slowly drifted lower and at one point, pared almost all the gains of the first hour of trade. However, things picked up again from there on and the index kept on steadily marking higher tops during the day.

While no volatile moves were seen, the index slowly kept on inching higher and maintained the gains. The headline index finally ended the day with a net gain of 128.15 points (+0.78 per cent).

The technical highlight of the day was that Nifty managed to bounce off successfully from the immediate support at 16,300 level. Another important thing was the Bank Nifty sharply outperformed Nifty on the expected lines. In the previous notes, we had mentioned that Bank Nifty is lagging in its relative performance and is expected to play catch-up.

This behaviour may well continue through the coming week and we expect this index to relatively outperform the Nifty50. Volatility dropped again; India VIX ended 3.63 per cent down at 13.1875. Nifty is likely to see a stable start to the Wednesday’s session. The 16,685 and 16,750 levels may act as key resistance, while supports should come in at 16,580 and 16,500 levels. It should be noted that the 16,500 level holds maximum concentration of Put Open Interest. Hence, it may act as the immediate near-term support for the index.

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The Relative Strength Index (RSI) on the daily chart stood at 70.97; it has again mildly drifted in the overbought zone. However, the RSI remains neutral and does not show any divergence against the price. The daily MACD is bullish and remains above the Signal Line.
Pattern analysis showed that the most recent congestion zone that the market created after Nifty’s original breakout from 15,900 level has lent support to the index. This area between 16,300 and 16,350 levels is the most immediate near-term support for the index now.

As far as the original breakout is concerned, the breakout will remain in force as long as the NIFTY is able to keep its head above the 16000 levels.

We have also enter the penultimate day of the expiry of the current month derivative series on Wednesday. It is largely expected that rollovers will continue to influence the proceedings. The possibility of the largecaps and the laggards relatively outperforming the broader market remains high. It is recommended that while avoiding shorts, traders should stick to the largecaps and look for good quality stocks that are in the process of improving their relative strength against the broader market.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)



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