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Trade setup: Nifty in uncharted territory; don't chase stocks rally blindly


The domestic stock market made a better-than-expected start to the session on Monday, as it opened higher and sustained gains throughout the day. Despite spending most of the session in a capped 25-point range, NSE Nifty ended with a gain of 72.75 points or 0.59 per cent at 12,329.55, a fresh record high.

The headline continues to remain in the present area formation. The index traded in the broadening formation and is expected to test some incremental highs on Tuesday. In the same breath, given the rising nature of the upper trend line of the present area formation, there are fewer chances of Nifty giving a clean breakout despite making incremental highs.

Lead indicators are pointing towards more strength, which may lead the market higher, albeit with a limited potential.

Tuesday’s session is likely to see 12,350 and 12,390 levels act as immediate resistance. Support may come in at 12,295 and 12,245.

The Relative Strength Index (RSI) on the daily chart was 60.42 and marked a fresh 14-period high, which is bullish.

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The daily MACD continued to stay bearish and traded below its signal line. Apart from a white body, no other important formations were seen on the candles.

As per pattern analysis, Nifty continued to trade in the broadening formation. The index is expected to keep tracking the upper trend line, which is rising in nature.

Even as India VIX rebounded from its recent multi-month lows, it is still trading lower lower 2019’s average. This being said, despite the direction that the market may take, the possibility of volatility increasing in the near term cannot be ruled out.

All in all, upward momentum is likely to persist for some more time. Traders can continue to follow incremental upward moves. However, they shouldn’t chase rally blindly, as Nifty trades in the broadening formation despite being in uncharted territory. A cautiously positive view is advised 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)





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