Trade setup: Nifty has strong hurdle ahead; use every rise to protect profit

The domestic stock market put up a strong show on Tuesday, despite a tepid start, as the NSE benchmark Nifty ended with a gain of 123.95 points or 1.14 per cent.

Nifty has moved past the 200-DMA, which is at 10,863. On the other hand, it has halted exactly at the multi-month resistance area formed over the past couple of months.

Though we expect a stable start to the trade on Wednesday, the opening levels and the intraday trajectory will be crucial to watch out for. In an event of any consolidation creeping in, the zone between 200-DMA and 50-DMA would lend support.

On Wednesday, Nifty is likely to see 11,040 and 11,100 levels act as key resistance. Supports may come in at 10,900 and 10,860.

The Relative Strength Index (RSI) on the daily chart stood at 60.5738 and it has marked a fresh 14-period high, which is a bullish sign. It did not show any divergence against the price. The daily MACD stayed bullish and traded above its signal line. A big white body emerged on the candles.

The pattern analysis on the daily charts showed that Nifty is now trading above all its key moving averages. Though it has moved past the averages, it has halted its up-move near the multi-month resistance points that were created over past couple of months.

All in all, since Nifty has ended near the high point of the day, a stable opening on Wednesday cannot be ruled out. However, in the current up-move, it has completely disregarded the existence of 200-DMA, which warrants some caution at the higher levels.

There are possibilities that we might see some consolidation setting in once again. With the zone of 200-DMA and 50-DMA acting as support, it will not be a surprise if we some consolidation creeping in.

However, if Nifty continues with its up-move, all upsides should be used to protect profits, while continuing to keep exposures at modest levels.

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