Market extended its pullback and on expected lines, moved higher to test its 200-DMA and end the day with gains.
That aside, though the Nifty tried to add some sparkle to the trade by attempting to move past 200-DMA, the mood of the market remained tentative for the entire day with some element of caution ingrained in it.
Despite this, the Nifty ended the day with gains of 81.20 points (+0.76 per cent).
The all-important RBI and government went on for the entire day on Monday. Both sought to build consensus on a wide variety of issues like determining the quantum of capital the RBI needs, the PCA realisations and the like. This entire exercise is also being viewed by certain sections as a blatant attack on RBIs autonomy.
It is important to note that never ever in the history, the RBI board has ever gone on to direct the RBI governor. As per the tradition and also as per the practice, the board is ought to have stopped every time at the point of persuasion and refrain from directing the governor.
Coming back to the market, even if the RBI and the government reach some agreement on a positive side, the stock markets may rejoice and see some sparkle being carried forward.
However, if we are to take a rational and technical view of the market, it is certainly the time to get cautious.
Tuesday is likely to witness a volatile session as the market will react to the outcome of the RBIs meet. Once again, while taking a technical view on the state of affairs, the market will react to the positive outcome in a moderate manner, but will react more fiercely to any of the negative inputs.
Though we expect a stable start to the trade, volatility is expected to remain ingrained in the session with the levels of 10,800 and 10,850 acting as resistance and supports coming in much lower at 10,650 and 10,590.
The RSI on the Daily Chart is 59.3747 and it has made a fresh 14-period high, which is bullish. Daily MACD stays bullish while trading above its signal line.
While looking at the pattern and current structure of the charts, a couple of unpleasant developments have occurred. We have 50-DMA cutting the 200-DMA from above. This death-cross may not have devastating effect on the Daily Charts the way it does on the higher time frame charts, but it is important enough to sound some caution. Also, the Nifty has managed to move past the 50-DMA and 200-DMA by a notch, but is yet to move past its filter where it will be welcomed by yet another resistance zone.
All in all, despite the pullback remaining intact and the Nifty possibly reacting positively to RBI meeting outcomes, if any, it is time to approach the market with great caution. We strongly recommend avoiding aggressive purchases and continue 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 milan[email protected])
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