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Trade setup: Nifty50 not to see runaway rally; be on your guard

The May derivative series ended on a robust note on Thursday..

The May derivative series ended on a robust note on Thursday, as the market saw a sharp surge in the second half of the session. The NSE benchmark Nifty ended 121.80 points or 1.15 per cent higher.

In our previous note, we had mentioned likely short covering in the second half of the trade as May seniors had significant amount of such positions existing in the system.

Thursdays session traded much on the expect lines and witnessed a sharp surge on account of short covering.

As we approach Friday, even as we expect a quiet to modestly positive start, the Nifty may once again move towards the situation where a consolidation or a mild retracement at higher levels should not surprise us.

A modest upmove cannot be ruled out on Friday, but in the same breath, Nifty may witness some corrective retracements from higher levels. Friday will see the levels of 10,750 and 10,795 will play out as immediate resistance area. Supports may come in at 10,650 and 10,600 zones.

The Relative Strength Index (RSI) on the daily chart is 57.75, and it remains neutral showing no divergence against the price. It marked a higher bottom and inched higher. Though daily MACD is still bearish, it is on verge of reporting a positive crossover.

Pattern analysis reveals an interesting picture. The Nifty has validated the support of 50-DMA at closing levels and has move past the 100-DMA as well. The index halted at its short term 20-DMA, but in Thursdays session, it has not only moved past its short term 20-DMA, but has moved past the multiple pattern resistance zones of 10,600-10,650 levels.

Overall, for the immediate short term, we can fairly expect the Nifty to continue with its upmove and expect it to test the upperband of 10,860-10,890 zones.

However, this is not likely to happen without any minor corrective retracements. Though the Nifty shall overcome this, the zones of 10,860-10,890 will still remain a formidable resistance on the long-term charts.

We recommend making select purchases and riding the momentum.

However, we also recommend maintaining high levels of vigilance at higher levels. Protect existing profits in the coming days.

STOCKS TO WATCH: Long positions were added in stocks of PFC, NTPC, RCom, IDBI Bank, ICICI Bank, State Bank Of India, TV18 Broadcast, NTPC, Tata Motors DVR and DLF.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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