Trade Setup: Nifty may extend up move on Tuesday

In a volatile trading day, the domestic equity market continued to advance and ended with a new high but not without a sharp profit taking bout in the first half of the session.

Headline index Nifty had a much better-than-expected start to the day. After opening positive and staying range-bound in the first hour, the market came under a sharp profit taking bout later on. This made the index pare 80-odd points from the high point of the day. However, after slipping in the red and marking the day’s low, Nifty witnessed a
remarkable rebound which saw itself moving past the 14,100 level once again. The headline index ended the day with a net gain of 114.40 points, or 0.82 per cent.

The market is showing tremendous underlying strength and all correctives so far has stayed intraday. The F&O data had maximum Put writing today at 14,100, though the level of 14,000 holds the maximum PUT OI. Unless this changes significantly, Nifty may keep taking supports below 14,000. However, given the overextended nature of the market and the fact that Nifty is overbought at this level, any up move must be followed cautiously. Volatility inched up again with India VIX rising by 2.40 per cent to 20.0300.


Tuesday's session might see some extension of the up move since the market has ended near the high point. The levels of 14,150 and 14,235 will act as resistance points, while support will come in at 14,035 and 13,950 levels.

The daily RSI stands at 75.55; it stays overbought and continues to show a bearish divergence against price. The daily MACD is bullish as it remains above the Signal Line. A Hanging Man pattern occurred on the charts. The occurrence of such a pattern near the high point reminds us to stay cautious of any impending profit taking bouts.

The risk-on setup is forcefully on and the US dollar continues to stay week. All this is collectively fueling strong FII flows in the market. Nifty may continue to see some incremental moves; however, without disputing the strong undercurrent and buoyancy, the market needs to be approached in an overly cautious manner as it stays vulnerable to profit taking bouts at higher levels.

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