Trade setup: Don’t get carried away by rally; Nifty has key hurdle at 11,380

The RSI on the daily chart stood at 58.56 and marked a fresh 14-period high, which is bullish.

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In what can be touted as one of the boldest reforms in the recent past, the government on Friday morning lowered tax rate for Indian companies.

The domestic equity market opened flat and traded in a narrow range in the first hour of the trade. However, the announcement triggered a monstrous short-covering move. NSE benchmark Nifty witnessed biggest single-day gain in a decade to end 569.40 points or 5.32 per cent at 11,274.20.

There are several technical repercussions of the larger-than-usual move in the market.


First, the headline index has protected the crucial 10,650-10,780 support zone, and has survived the bearish outcome, which would have come after a downside breach following a rounding top formation.

Second, there are chances that such a massive move can push the market into a period of consolidation once again even if some follow-up downside happens over the coming sessions.

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It will be natural for the market to take a breather before moving significantly higher from the current levels.

We expect a slightly volatile start to the trade on Monday, and the intraday trajectory in the first hour of the session will be crucial to watch.

It will be essential to see if the market takes a breather and if some profit-taking follows or it continues its upmove, which will now be a hysterical behaviour of the market.

Monday’s session is likely to see 11,380 and 11,435 levels act as immediate resistance. Supports may come in much lower at 11,200 and 11,130.

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The Relative Strength Index (RSI) on the daily chart stood at 58.56 and marked a fresh 14-period high, which is bullish. The PPO has turned positive again, and the daily MACD has shown a positive crossover.

On Friday, Nifty cooled off some 100 points from day’s high before closing. Some followup moves in the early part of the session may not be ruled out, but any vertical movement in a hysterical manner will put the risk-reward ratio unfavourably skewed.

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The index has closed outside the upper Bollinger band. However, given the unusually large size of the
candle, a temporary pullback inside the band cannot be ruled out.

We recommend traders to chase rallies very cautiously and remain vigilant at higher levels.

(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)
(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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