Trade setup for Tuesday: Select outperformance to continue, protect profits at higher levels

A remarkable resilience was put on display by the Indian equity markets on Monday as the index opened lower, recouped all of its losses by afternoon and ended with gains.

The Nifty closed the day gaining 47.75 points or 0.46 per cent. In our previous note, we had expected the market to put up a resilient show. However, this being said, the Nifty has ended with gains for the eighth day in a row.

As we approach Tuesday, there are no second thoughts and the market will continue to display a buoyant undercurrent. In the same breath, it is time that we now approach the market with caution. Some consolidation at current or little higher levels seem imminent. It is time that we approach each up move with a pinch of additional caution.

For a healthy up move to continue, the market is seen overripe for some consolidation. Tuesday will see the levels of 10,550 and 10,580 posing resistance to the market. Supports come in at 10,490 and 10,450 zones.

The Relative Strength Index – RSI on the Daily Charts stand at 61.6643. It marks yet another 14-period high which is bullish. RSI continues to remain neutral showing no divergence against the price. Daily MACD remains bullish while trading above its signal line.

Outlook-1

On the Candles, an engulfing bullish pattern has occurred. It is important to note that if such pattern emerges during an up move, it has the potential to temporarily halt the present uptrend and push the market towards some consolidation.

While having a look at pattern analysis, it remains evident that the Nifty looks little overstretched on certain oscillators. Further, if we have a simpler look, the Nifty is approaching its important pattern resistance which lies in the 10,550-10,580 zones.

Overall, we are likely to see undercurrent remaining extremely buoyant. However, we also expect some volatility to creep in and some rangebound consolidation to occur. For a healthier continuation of the current upmove, it would be necessary for the market to consolidate a bit.

We will see the session remaining highly stock-specific and select outperformance will continue. While remaining light on overall exposure, proper rotation of sectors and stocks is advised while protecting profits at higher levels.

STOCKS TO WATCH: Technically buoyant setup is observed in stocks like Indiabulls Real Estate, SAIL, Jain Irrigation, Jindal Power, Cipla, CG Power, Hind Zinc, Vedanta, Ashok Leyland, NCC, Nocil, Exide Industries and Grasim.

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

Source: Economic Times