Trade setup for Monday: Nifty likely to see rangebound trade; refrain from shorting

The Indian equity market continued its upsurge for the second day in a row on Friday, as the Nifty50 advanced gains and ended the day 91.30 points or 0.87 per cent higher. Though select buying was evident in specific stocks, bulk of the rise came from short covering.

What was technically important was that the Nifty50 has validated the 50-DMA as its support at close and also moved past and closed above the 100-DMA level, which now stands at 10,539.

As we enter the expiry week of the current derivative series, we expect a quiet opening on Monday and expect Nifty to advance to the short-term 20-DMA, which stands at 10,668. The 50-pack may encounter multiple pattern resistances there.

The 10,660 and 10,695 levels may act as immediate resistance levels for Nifty, while supports may come in at 10,540 and 10,480 levels.

In the event of any minor correction, the 100-DMA level may act as support at close.

The Relative Strength Index or RSI on the daily chart stood at 50.6063 and it remained neutral showing no divergence from price. The daily MACD remained bearish as it traded below the signal line. However, it is seen narrowing its trajectory. Apart from a white body that occurred, no significant formations were observed on the candles.

Pattern analysis of Nifty revealed the index was within striking distance of its short-term 20-DMA, which also happens to be an important pattern resistance area for the market. There are chances that the market shall stall its rise there and see some consolidation in a narrow range.

Overall, with a quiet opening to trade expected on Monday, we expect the session to remain rangebound in nature. We expect minor gains in the market in general, while the upward move may get stalled for a short while near the short-term 20-DMA.

In the event of any minor correction, the 100-DMA level may act as support at close. We recommend refraining from shorts and continue modest stock-specific purchases. A positive but cautious view is advised for the day.

Long positions were seen added in stocks like IDFC Bank, Adani Power, JSW Steel, Idea Cellular, South Bank, PFC, DHFL, Hindalco, Vedanta, Sun Pharma, Tata Motors, Federal Bank, TV18 Broadcast and Axis Bank.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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