Market outlook: Continue stock purchases, but guard profit at higher levels

Indian equity market continued to rally and went on to scale yet another peak on Monday, as the benchmark index Nifty50 ended the day with a decent gain of 71.50 points or 0.66 per cent.

After a tepid start and a rangebound trade in the first half of the session, the buoyancy returned to the market.

While going into the trade on Tuesday, we expect the levels of 10,880-10,900 acting as a strong base. Though a quiet to modestly positive start is expected, there are heightened chances that the market encounter consolidation in a defined range, while individual stocks continue to outperform.

The levels of 10,990 and 11,075 will act as immediate resistance levels for the market. Supports came in at 10,900 and 10,865 zones.

The range of the Nifty has widened owing to the unabated move on the upside. The Relative Strength Index (RSI) on the daily chart is 79.2404. It has marked a fresh 14-period high, which is bullish. However, it trades in overbought territory.

The daily MACD remains firmly in continuing buy mode and it is bullish while trading above its signal line. The pattern analysis shows the upmove remaining firmly in place. The Nifty has ended in an unchartered territory, and has shifted its base much higher at 10,490-mark after breaking out above those levels.

We have to take note of the fact that the Nifty now trades much overbought. However, being overbought is a sign of strength and it is no reason to sell. However, it may induce some consolidation at higher levels. The Nifty has continued to close above the upper Bollinger band and this applies that the current breakout and the upmove that we are witnessing may continue.

However, given the fact that the Bollinger bands are 45.40 per cent wider-than-normal, there are probabilities of Nifty returning within a rage in coming days.

In any case, this translates into buoyant outlook with limited downsides in the market. Some consolidation is expected, but it is advised to continue to make purchases while guarding profits at higher levels.

STOCKS TO WATCH: Resilient technical setup is observed in LIC Housing Finance, BHEL, ONGC, Reliance, Tata Power, Indiabulls Housing, Tin Plate, HUDCO, L&T Finance Holdings and Tech Mahindra.

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