Tuesday Outlook: NIFTY Need To Move Past This Level Convincingly; Selective Approach Advised
The markets continued to remain at a critical juncture on Monday as it started on a positive note, stayed positive through the day, and ended the day with a modest gain. After witnessing a positive start, the index traded in a defined territory and oscillated in a 35-point range. After not taking any further directional call, the NIFTY settled with a modest gain of 76.75 points (+0.65%).
The markets displayed a positive bias and are likely to witness some follow-up move on Tuesday as well. A flat to a mildly positive start to the day cannot be ruled out. However, the NIFTY has still not moved past its critical resistance area of short-term 20-DMA convincingly. This 20-DMA, which stays at 11840, continues to remain a vital level to watch for in the immediate short term.
Tuesday is likely to see the levels of 11890 and 11965 acting as resistance for the NIFTY. The supports will come in at 11810 and 11750.
The Relative Strength Index (RSI) on the daily chart is 54.5200; it stays neutral and shows no divergence against the price. RSI remains trapped within a formation and is seen making lower tops. It is important to note that RSI is a leading indicator and breakout from a structure will be necessary to give inherent strength to the NIFTY if the markets have to move higher. The daily MACD continues to remain bearish, and it trades below its signal line.
From the pattern analysis of the daily chart, it appears that the NIFTY has attempted to move out of the congestion area. However, it has not yet done so convincingly. The Index has ended just a notch above its short-term 20-DMA and going ahead; this level will be important to watch on a closing basis.
All in all, despite exhibiting a positive bias, the NIFTY has not moved out of the congestion area convincingly. It needs to show strength going higher, and similar healthy behavior in the leading indicators will be essential to lend inherent power to the markets. The NIFTY is likely to trade in a broad range we recommend continuing to use all up moves to protect profits at higher levels. A stock-specific approach is advised, and overall positions should be kept at modest levels until a decisive directional call in the markets is established.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)