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Monday, May 17, 2021

Trade Setup: Nifty looks gung-ho despite tough technical situation

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The F&O expiry week started on a strong note as Nifty went on to add some more gains on the first day of the trading week. The market saw a positive opening and traded with capped gains in the first half of the session. The afternoon session saw more strength come in as the index attempted to pierce the stiff resistance zone.

While continuing to face resistance in that zone, Nifty saw some retracement from the high point of the day. The index finally closed with a net gain of 94.85 points, or 0.83 per cent.

Markets have continued to display strong inherent liquidity-driven strength over the past couple of days. Nifty is yet to penetrate the 11,430-11,500 zone, as it has closed exactly in the middle of this resistance area created by a gap. Nifty’s behaviour vis-a-vis this zone is going to be crucial. Any move beyond the 11,500 level will fuel more gains regardless of the precarious technical situation.

Volatility continued to decline as INDIA VIX came off 3.55 per cent to 19.2300. On Tuesday, Nifty will face resistance at 11,500 and 11,545 levels, while supports come in lower at 11,380 and 11,295 levels. Any corrective push is going to widen the trading range.

The Relative Strength Index, or RSI, on the daily chart stood at 65.35; it showed a bearish divergence against price, as the indicator did not make a fresh 14-period high with Nifty. The daily MACD remains bearish and stays below the signal line.

Pattern analysis showed Nifty has thwarted a possible breakdown by bouncing off the lower trend line support. This makes the 11,300-11,350 zone an important support for Nifty. On the higher side, the market is looking to fill the gap in the 11,430-11,500 zone.

X5ET CONTRIBUTORS

All in all, even though Nifty is making fierce attempt to penetrate the 11,430-11,500 zone, it has not done so yet. Even if the index moves past this zone, it should not be taken for granted.

Investors should wait for confirmation on a breach of this zone even if the market continues to display strength. A weaker dollar is aiding markets, but the momentum should be chased with extreme caution. While traders may continue to follow the upside, any technical pullback in the Dollar Index can cause sharp and volatile disruption.

Broadly speaking, we expect banking and financial stocks to continue relatively outperformance over the broader market.

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

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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