Markets

Market outlook: Nifty50 likely to edge higher in a volatile trade

The equity market witnessed immense volatility on Monday as the benchmark Nifty50 swung nearly 300-odd points on either side, before settling with a net gain of 55.50 points or 0.54 per cent.

The Nifty saw a gap down opening, directly tested the 100-DMA and then recovered form that levels, once the ruling BJP showed improved margin over the Congress in Gujarat. The volatility was expected, but the quantum remained much larger than expected.

Tuesday will continue to see volatility ingrained in the market, but may continue to trade with a positive bias. The market witnessed huge spate of short covering from the opening lows, and this is likely to see follow-up up move on Tuesday as well, at least in the initial trade.

The levels of 10,435 and 10,490 will act as major resistance area for the market. Supports come in at 10,350 and then at 10,275 levels.

The Relative Strength Index (RSI) on the daily chart is 58.9091 and it has marked a fresh 14-period high, which is bullish. The daily MACD is bullish as it trades above its signal line.

The candles showed formation of a bullish engulfing pattern. However, the place of its occurrence makes it relatively insignificant.

The pattern analysis shows that the market has managed to move up from the falling channel that it had created as a part of the intermediate trend.

Further to this, the RSI has broken out from a pattern in which it was marking lower tops. All this points towards the follow up move spilling over into Tuesday’s trade as well.

The volatility being discounted, and if we look at the macro picture, the BJP’s win will not be viewed too favorably by the market in the long run.

The method in which the BJP’s majority was dented as compared to 2012 will instill a lot of caution into the market, and will lead to volatile churning of portfolios.

We may see some positive bias going into trade on Tuesday, but each move should be used to protect profits at higher levels. Caution is advised and we expect market encountering resistance once again as it approaches higher levels.

STOCKS TO WATCH: Good technical set up is observed in stocks like L&T Finance Holdings, Federal Bank, Ashok Leyland, Hexaware, Power Grid, BEML, ACC and DHFL. These stocks may be seen trading with positive bias.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

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