The domestic equity market continued to pile more gains as the benchmark Nifty50 ended Monday’s session with a gain of 40.60 points, or 0.39 per cent. Much on the expected line, the market saw marginal highs and put on gains on an end-of-day basis. However, we also need to take on account the fact that the intraday bands are once again getting narrower. Going into trade on Tuesday, we can expect a modestly positive start to trade. However, minor signs of distribution are appearing, which we need to look at with caution.

The 10,390 and 10,430 levels will play out as immediate resistance area for the markets. Supports will come in lower at 10,310 and 10,235 levels.

The Relative Strength Index or RSI on the daily chart stood at 69.6210. It has continued to show a Bearish Divergence once again. While the Nifty50 made a fresh 14-period high, the RSI did not. The daily MACD is bullish, as it trades above its signal line, but over the past few days, it has flattened its trajectory.



Pattern analysis shows the Nifty50 has successfully attempted to break out of a broad rectangular formation that it has formed over the past couple of weeks. However, the breakout is likely to lose steam, forcing the market to consolidate at higher levels.

All and all, the Nifty50 may still continue to pile up some more gains but at the same time, we just cannot and should not ignore the persistent bearish divergences that thrown by the lead indicators on the charts.

These are enough warning signals that the higher levels in the Nifty could also mean some loss of momentum and some forced corrective consolidation. While remaining highly stock specific, one should maintain a cautious outlook for the day.

STOCKS TO WATCH:
Stocks like Federal Bank, Oberoi Realty, JK Tyre, GIC Housing Finance, LIC Housing Finance and Lupin may be seen trading with a 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)