Market outlook: After Thursday’s bounce, Nifty50 may consolidate

In our previous note, we had mentioned about the possibility of Nifty testing the 9,700-mark. In line with that analysis, the index tested this level while ending the day with net gains of 36.95 points or 0.38 per cent on Thursday. In the process of testing the 9,700 mark, the Nifty50 also reacted from these levels, as it happened to be a pattern area resistance.

On Friday, we expect the market to see a tepid start and then go into some consolidation with minor corrective activities. The 9,680 and 9,710 levels should play out as important resistance for the Nifty50, while supports will come in at 9,630 and 9,585.

The Relative Strength Index or RSI on the daily chart stood at 62.2610. A bearish divergence was observed in Nifty as it marked a fresh 14-period high while the RSI did not. The daily MACD continued to be bearish while trading below the signal line.

Pattern analysis clearly suggested that the market will continue to face pattern resistance in the 9,700-9,735 zone in coming days. The market breached a rising trend line on the downside and while on its move up, this very trend line is now acting as resistance.



Given the rising nature of this trend line, Nifty will find it difficult to post a clear breakout soon. Overall, some signs are evident on the charts that suggest the Nifty momentum is likely to taper down. The market remains overbought on the Stochastic, while showing a bearish divergence on the lead indicator.

F&O data suggests some amount of profit taking may occur, though outperformance in select stocks will continue. Investors are advised to vigilantly protect profits at current levels.

STOCKS TO WATCH:
1. MindTree: Buy this stock above Rs 544 with a short-term target of Rs 560. The IT pack is witnessing select activity and this stock is likely to see some upward revision of prices. After reporting a buy on Stochastic with a bullish divergence, MACD has reported a positive crossover. It is now bullish as it trades above its signal line. The RSI remains in upward trajectory and suggest momentum to continue. (Any call on this above the prescribed level would be positional and not intraday.)

2. Canara Bank: Buy this stock above Rs 342 with a short-term target of Rs 350. The stock consolidated around the strong support area near 100-DMA following which a potentially bullish reversal candle has occurred. The MACD is moving sharply towards a positive crossover. The RSI shows clear bullish divergence against the price. Upward momentum is likely to continue in this stock. (Any call on this above the prescribed level would be positional and not intraday.)

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. Contentions made in this article are mere observations. Investors should consult their financial advisers before taking any positions based on these remarks. Views expressed are the author’s own do not represent those of ETMarkets.com. The author can be reached at milan.vaishnav@equityresearch.asia)