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Trade Setup: Nifty may be in for some defined range-bound consolidation

Market Outlook For Monday, Sep 27, 2021

The previous five days of the week had remained largely buoyant. However, Nifty kept rising one day and consolidating on the other day while rising on alternate days. On Friday, Nifty marked its fresh lifetime high of 17,947 and came off from the high point of the day though it still went to end with nominal gains. Markets saw a positive start to the session and marked their high point in the late morning trade. However, after that, the Nifty slipped in a declining trajectory and pared all of its gains at one point in time. Although it never slipped in the negative, the headline index closed with net gain of 30.25 points (+0.17%).

Monday is likely to see a quiet start to the day. We enter the expiry of the current month derivative series. The weekly options data indicate that the Nifty may be in for some defined range-bound consolidation while other sector indexes like BankNifty, PSE Index, Auto, etc., may show improvement in their relative performance. For Nifty to continue with its up move, it would be crucial to keep its head above the 17790 levels. If the index slips by this point, it will push itself in some imminent consolidation.

Volatility edged higher; India VIX rose by 1.93% to 16.9225. The levels of 17,900 and 17940 will act as resistance points. The supports come in at 17780 and 17750 levels.

The Relative Strength Index on the daily chart is 77.89, it shows a mild bearish divergence agains the price. The daily MACD has shown a positive crossover again; it is now bullish and above the signal line. A black candle emerged; apart from this, no other formation was observed on the charts.

The pattern analysis shows that the Nifty has been rising consistently after the major breakout that occurred after the Nifty broke above 15900-15950 zones. In the process, it kept on consolidating while forming basing points. The index rose higher after each such consolidation. The most recent basing point was formed at 17,790. Any slip below this point will push the NIFTY under some defined consolidation.

All in all, there are high chances that the most of the week may stay influenced with rollover centric activity. The inherent strength of the markets remain intact; there are no visible signs as of now that would indicate any major weakness. However, there are some signs that point towards some impending consolidation. There are also some indications that indicate that while the NIFTY may consolidation, the other sectors like Banknifty, PSE Index, Auto, etc., may improve their relative strength. We recommend continuing to avoid shorts and keep new purchases highly stock-specific in nature. A cautiously positive approach is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara.The views are his own)

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