Trade setup for Monday: Nifty likely to stay vulnerable at higher levels, don’t chase momentum blindly

NEW DELHI: Friday witnessed a relatively stable session and the market remained buoyant despite being slightly over-extended on higher time frame charts. The Nifty opened higher and spent the entire session trading in a narrow 25-odd points range. Finally, the benchmark index ended the day gaining 85.70 points or 0.75 per cent.

As we approach the coming week, which again remains a truncated one, we expect a quiet start to the trade. Global environment is stable, and we expect the calm to remain in our domestic markets as well. We may also see a modestly positive start but at the same time, we need to exercise even more caution as we are dealing with over-extended and overbought market on the higher time frame charts at current time.

Monday is likely to see the levels of 11,495 and 11,550 posing resistance to the upmove. The supports will come in lower at 11,420 and 11,375 zones. The Relative Strength Index – RSI on the Daily Chart is 66.1925 and it remains neutral showing no divergence against the price. The Daily MACD stays bearish while trading below its signal line. On Candles, a small white body occurred. The smaller size of body usually indicates little intraday price action and depicts an indecisive intent of the market participants.

Pattern analysis shows the market remains firmly in uptrend after confirming a breakout from its previous lifetime high of 11,170-11,175 zones. Presently, it is seen consolidating in a defined range while it gathers strength of another phase of an upmove.

Despite strong undercurrent, the Nifty is lightly overbought and over-extended on the higher time frame charts. This may lead us to either consolidate at current levels or may lead to sporadic and volatile profit taking bouts at higher levels in the immediate short term. Keeping this in mind, the analysis for Mondays trade remain on similar lines. We continue to expect the market to remain vulnerable at higher levels with minor profit taking bouts. We, therefore, continue to recommend not to chase momentum blindly and remain stock specific in approach. While guarding profits at higher levels, cautious view on the market is advised for the day.

Stocks to watch:
Resilient behavior is expected from the stocks like GAIL, PNB, YES Bank, Reliance, Ashok Leyland, Axis Bank, Indian Hotels, IDBI Bank, NBCC, Tata Steel, NCC, Cadila and Granules India.

(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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