Trade setup: Nifty may extend rally, but is vulnerable at higher levels

Indian stock market continued to rally, as both Nifty and Sensex climbed to their record highs on Monday. The session was stable with virtually no volatility, and this kept the upmove across the board. The upsurge remained secular, except for the IT pack.

The NSE benchmark Nifty ended logging a decent gain of 81 points or 0.71 per cent.

The stock market is in firm bullish grip and in equally firm uptrend. The Nifty is likely to inch higher given the present setup, but as pointed earlier, the trades are visibly overextended on the higher time frame charts.


Therefore, traders are advised not to get carried away by these rallies and be extremely vigilant at higher levels.

Tuesday’s session is likely to see the levels of 11,565 and 11,610 acting as immediate resistance zones. The supports may come in lower at 11,480 and 11,410 zones.

The Relative Strength Index (RSI) on the daily chart is 69.8051. The indicator shows a bearish divergence, as the Nifty has marked a fresh 14-period high while the RSI did not. The daily MACD stayed bearish while it trades below its signal line. On the candles, a rising window emerged. This is a bar with a gap and usually implies continuation of the bullish trend.

The pattern analysis again showed mild signs of fatigue. We may continue to see market marking higher levels, but at any given point of time, they are overdue for a mild corrective move.

As long as the market remains overstretched and overextended on the higher time frame charts, there are higher chances of it facing volatility, which even throws the supports little lower.

While avoiding shorts, as the undercurrent remains extremely buoyant, positions should be extremely guarded against likely swings and profits should be very vigilantly protected at higher levels.

STOCKS TO WATCH: Long positions were seen being built in stocks like Tata Motors, Nalco, PNB, L&TFH, Idea, IDFC Bank, Infibeam, Ashok Leyland, BHEL and Piramal Enterprises.

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