Trade setup bullish, but Nifty may pause before next leg of rally

The party on Dalal Street continued on Monday as Indian equity market saw yet another gapup opening and ended with a robust gain. NSE Nifty zoomed 326 points or 2.89 per cent at 11,600.20.

The headline index tested intraday high of 11,694 and pared over 95 points from the high point of the day. Also, the index did not make any incremental intraday high in the second half of the session.

The advance-decline remained positive, but it was not as strong as the previous session. These are mild signs that the market may take a breather and consolidate. There are higher probabilities that 11,700 may prove to be a resistance point for the short-term.

We expect a quiet start to the trade. In the event of any continued upmove, 11,700 and 11,745 levels will act as resistance. Supports may come in much lower at 11,470 and 11,410.

The RSI on the daily chart stood at 65.63 and did not show any divergence against the price.

The daily MACD stayed above its signal line while the PPO remained positive. A rising window occurred on the candles. Usually, such a formation implies continuity of the upmove, but in the present context, this will require confirmation on the following bar.

The pattern analysis showed Nifty has retraced from one of its pattern resistance points at 11,700. The price action against the level will be key. On the downside, it has 100-DMA to look at in the event of any consolidation at current levels.

There are no doubts that the market is in a bullish mode. However, given over 900-point rise over the past two sessions, chasing longs may not be a good idea.

For the current upmove to sustain and extend higher, it will be necessary that the market consolidate a bit. This would be healthy in the long term if the index builds a base at the current levels. The unabated rise is making the risk-reward ratio extremely unfavorable for new long positions.

The strike price at 11,600 continued to show highest Call open interest, and this would mean that there are possibilities that Nifty consolidates around this level.

We recommend traders to chase upmoves very cautiously and protect profits at higher levels. It is recommended to curtail exposures at higher levels and approach the market with
caution as volatility is likely to remain ingrained in the coming sessions.

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