Trade setup: Nifty back to post-tax cut high, needs fresh buying to go higher
Nifty is expected to see a quiet start on Tuesday as it adjusts to the global trade setup.
Nifty ended the week with solid gains as it came back to the level that it had achieved post corporate tax cut. The headline index ended the day 75.50 points, or 0.65%, higher.
There are a couple of points that we need to look at as we begin a new week. While Nifty has reclaimed the level it had been at post corporate tax cut, Bank Nifty has under-performed the benchmark index, having given up approximately 25 per cent of its gains following the corporate tax cut. Apart from Bank Nifty’s underperformance, it has also given rise to concerns that Nifty has bounced solely due to short covering, as was evident from the decline in open interest that has accompanied the rise.
After Monday’s trading holiday, Nifty is expected to see a quiet start on Tuesday as it adjusts to the global trade setup. We expect the index to consolidate and face stiff resistance in the 11,700-11,750 zone.
The 11,700 and 11,750 levels are likely to act as key resistance, while support will come in at 11,590 and 11,510 levels. The Relative Strength Index (RSI) on the daily chart stood at 63.83. It remains neutral and does not show any divergence against price. The daily MACD remains bullish and trades above the signal line. The PPO stays positive. Pattern analysis on the daily chart showed Nifty tested the 11,700 level after the announcement of tax cut, gave up 50% of those gains and is now back at the same level. The 11,700-11,750 zone will be crucial for the Nifty in the coming days.
There are chances that the market may face resistance in the 11,700-11,750 zone. Nifty has been moving solely on the back of short covering over the past couple of days. In the absence of any fresh buying, such short-covering-led up-move may get risky at higher levels.
Investors can continue to chase the up-move but remain vigilant at the higher levels. If halt to Nifty move or consolidation should not come as a surprise. A cautious view is advised for the day.
(Milan Vaishnav, CMT, MSTA, is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)