Trade setup: Nifty may continue rally, but don’t let your guard down

The 11,860 and 11,935 levels are likely to act as immediate resistance points for NSE Nifty.

BCCL
Tuesday’s session may see a positive opening and some follow-up moves may not be ruled out.
In a strong and unprecedented reaction to the exit polls, Indian equity market saw a gap-up opening on Monday, and got stronger towards the end to give a fresh lifetime high. The headline NSE Nifty ended with a gain of 421.10 points or 3.69 per cent.

A strong government back at the center is certainly a big positive for the market.

Having said that, we would suggest taking a slightly different view of the situation. To begin with, looking at the behaviour today, it seemed like market forgot that exit polls are not actual results.


Importantly, apart from the fact that exit polls are never accurate, the big question is; if market reacted this much to exit polls, there is nothing much left to react when actual results come out on May 23.

A positive reaction was expected for sure, but the quantum of such a move puts a big question mark on the sustainability this rally.

In the past three sessions, Nifty has zoomed nearly 700 points. Apart from this, intraday lifetime high of 11,856 is yet to be taken out. The behaviour of the index against this level is extremely important to watch out for.
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Moreover, given the quantum of the rally, the market has once again hit the valuations that are justifiable, technically or otherwise. The macroeconomic, global and macro-technical tailwinds still continue to exist.

Tuesday’s session may see a positive opening and some follow-up moves may not be ruled out. The 11,860 and 11,935 levels are likely immediate resistance points for NSE Nifty.

However, given the overall structure of the charts, we strongly feel that such a momentum should not be mindlessly chased. There are two more days to go until general election results and until then, or thereafter, there are high chances that some profit taking might take place.

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For anyone who has been long over the past couple of session, the market has presented excellent opportunity to take out profits. It is recommended that rather than mindlessly chasing the momentum, money should be taken off the table and one must wait until the market actually see election results and digest it fully.

The present upmove has given an excellent opportunity to investors to take out profits and create liquidity, which may be used later to rebalance their portfolios. The markets should be approached with a sane mind over the coming days.

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(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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