Headline index Nifty opened on a much stronger than expected note, stayed within a range, and ended the day with gains. The overall trading range, however, was limited as the day was spent more in maintaining gains rather than making incremental up moves. While staying for the entire session in a broadly defined range, the index showed no intention to correct, though some signs of incremental volatility were visible. Nifty ended the day with a net gain of 123.95 points or 0.90 per cent.
Off late, the market is doing two things simultaneously. On one hand, it continues to put on incremental gains, and on the other hand, it continues to flash warning signs given the current market setup. This time as well, without disputing the underlying technical strength, it is required to be continuously kept in mind that the present rally is led by the great liquidity push happening because of a weak US dollar. Any mild technical pullback in the US dollar is enough to give us a kind of jerk that we witnessed in the beginning of the previous week. The zone of 13,800-14,000 is still capable of offering great resistance to Nifty. Volatility index, India VIX, rose by 2.30 per cent to 20.4275, following a mild surge in volatility.
The overnight trade setup and any potential move on the either side by the Dollar Index will influence the trade tomorrow. The levels of 13,930 and 14,000 are likely to act as resistance while supports will come in at 13,785 and 13,710.
The Relative Strength Index (RSI) on the daily chart is 70.21. RSI is mildly overbought. However, more importantly, it shows a strong bearish divergence to price. The indicator has not marked a new 14-period high along with the price index. The daily MACD is bearish as it trades below Signal Line.
A mild gap has been created in the form of a rising window on the candles. Usually, it results in continuation of the uptrend but will need a clear confirmation, given the current technical setup.
All in all, we are in for some more incremental up moves. However, all moves on the upside, if there are any, will have limited upsides. Given the unabated rise of over 750 points once again from the lows of previous Monday, the market has once again made itself vulnerable to some consolidation or a sharp corrective activity. Continue following the market and its trend cautiously while keeping exposures at very moderate levels.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)