Don’t chase stocks rally blindly\, remain highly stock specific

In a strong rally after a wide rangebound trade on the previous day, the domestic equity market ended the Friday’s session with substantial gains. After opening on a quiet but stable note, Nifty witnessed a secular move on the upside. The market remained on a rising trajectory for the entire session and got even stronger as the session ended. The headline index closed with gains of 187.05 points or 1.60 per cent.

Friday’s session propelled Nifty to its fresh lifetime high on a closing basis. India VIX dropped another 15.14 per cent to 16.47. We expect a stable start to trade on Monday. However, despite Nifty ending at its lifetime high, it still awaits a clear breakout, and we will see the market trade in a broad but defined trading range for some time.

On Monday, the 11,910 and 12,000 levels are likely to be the next resistance points for Nifty, while supports should come in at 11,775 and 11,710 levels. The Relative Strength Index (RSI) on the daily chart stood at 61.1846. Nifty has formed a fresh 14-period high, while the RSI has not, and this has resulted in a bearish divergence against the price. The daily MACD remained bullish as it traded above the signal line.

Pattern analysis on the daily charts showed Nifty has ended at a new lifetime high on a closing basis, but is yet to achieve a clean breakout. The 11,850-12,000 zone is likely to offer stiff resistance to Nifty going forward, and this may prevent the index from getting a clean and clear breakout.

There are chances that we might continue to see some upward moves in the market. Having said this, we strongly recommend not chasing such upmoves blindly. There is a higher possibility that the action in the market would remain limited to certain sectors only. A highly selective and stock-specific approach is advised for the day.

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