Trade Setup: Nifty50 looks strong; action likely in financials, midcaps

The domestic equity market continued to surge on the last trading session of the week, and Nifty marched higher at the very start of the new derivative series. August F&O series had ended on a buoyant note, and the September series started on a strong note too. Nifty opened on a positive note and got stronger by afternoon as it marked the day’s high point. After that, the index remains rangebound, maintaining the gains.
After oscillating in a 35-point range for the rest of the session, the headline index ended with a net gain of 88.35 points, or 0.76 per cent.

From a technical perspective, Nifty has filled up the gap that existed in the 11,430-11,500 zone, and this is an important development. For the near term, any consolidation should find support near this zone. With Nifty now firmly placed in a Rising Channel, the probability of its testing the upper trend line has risen considerably.

The global risk-on, which is being fuelled by a gush of liquidity, is also very much in place. This will do what it takes to push equities higher.

Volatility continued to fall, as India VIX came off 2.90 per cent to 18.3475. On Monday, the index is likely to see a stable start to the week. The 11,700 and 11,785 levels are going to offer as resistance, while supports will come in at 11,610 and 11,550 levels.
The Relative Strength Index, or RSI, on the daily chart stood at 71.17. It has marked a fresh 14-period high, which is a bullish signal. The RSI remains neutral and does not show any divergence against price. It now trades mildly overbought. The daily MACD is bullish and it trades above the signal line.

Pattern analysis showed Nifty is placed comfortably inside the upward rising channel. The index tested the lower trend line of this channel a couple of times in the recent past, but has managed to bounce off from that pattern support. Nifty is now well above all the key moving averages.

With Nifty bouncing off and rallying over the past several days, it has shifted its supports higher to its 20-DMA, which is currently placed at 11,315 for the immediate short to medium term. Nifty has added to its fresh longs, as F&O data suggested 4 per cent net Open Interest addition to Nifty futures. We expect financials and midcaps to put up a resilient show. Among the other frontline stocks, defensives are likely to consolidate. We recommend chasing the momentum carefully while adopting a cautiously positive approach for the day.

(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)

Credit: Stocks-Markets-Economic Times

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