Trade setup: Nifty remains prone to profit taking at higher levels
The domestic equity market made a positive start to the trade on Monday, following bullish global cues. However, the NSE benchmark Nifty halted just below its 200-DMA, which is at 10,789 and finally settled with a gain of 44.45 points or 0.41 per cent at 10,771.80.
We expect a rangebound session on Tuesday, as the market remain trapped in a range. Though Nifty is still exhibiting a cautious but positive bias, it will have to move past some important overhead resistances to give a sustainable upmove.
Expect a quiet start to the trade, as the index is expected to remain in a defined range with 50-DMA acting a sacrosanct support for the immediate short term.
Tuesday is likely to see the levels of 10,830 and 10,875 acting as immediate resistance area. Supports may come in at 10,750 and 10,680 levels.
The Relative Strength Index (RSI) on the daily chart stood at 50.6051, and it continued to remain neutral, showing no divergence against the price. The daily MACD remained bearish while trading below its signal line.
On the candles, a rising window occurred. Rising windows are essentially gaps, and results into a continuation of the upmove. However, in the present situation, this has occurred within an area formation. These are area gaps and they are usually less stronger than breakaway or runaway gaps.
As per pattern analysis of the chart, it is observed that the Nifty has bounced back from the 50-DMA mark, which also happens to be the confluence area of two pattern supports. The pullback has halted at the 200-DMA, and at present, the Nifty continued to remain in an ascending triangle kind of pattern, which is formed over the short term.
Overall, to put in simpler terms, Nifty will find resistance at the 200-DMA and then at 100-DMA. Unless these two pattern resistances are taken out, we will see the market remaining prone to profit taking bouts at higher levels.
We may encounter volatility and profit taking at higher levels until such levels are actually taken out. We recommend avoiding shorts, making select purchases and vigilantly protecting profits at higher levels.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)