Trade setup: Nifty needs to consolidate a bit for the next leg of rally

The NSE benchmark Nifty on Wednesday snapped a seven-session winning streak and ended with a minor loss of 0.10 per cent.

The market will open after a holiday on Friday, and will have to adjust to many global developments. We expect a quite start to the trade.

Even if Nifty manages to see any upmove, the momentum should best be avoided, as the index may face consolidation or deep correction if global stocks take a breather.

The NSE barometer remains steeply overbought on the charts. We advise traders not to blindly chase momentum unless the market see some healthy consolidation or some minor corrective moves.

Friday’s session is likely to see 11,560 and 11,610 levels act as immediate resistance. Supports may come in at 11,480 and 11,410.

The Relative Strength Index (RSI) on the daily chart stand at 78.3568 and it remains neutral, showing no divergence against the price. The daily MACD continues to remain bullish, while trading above its signal line. Apart from a small black body, which was seen on the candles, no significant formations were observed.

The pattern analysis suggests that Nifty has reached its potential price targets after breaking out of a formation. This further makes a case for consolidation or some minor corrective moves, which now has become imminent.

The daily charts remain in highly overbought zone, and this clearly suggests that traders must exercise caution while chasing liquidity.

The US Federal Reserve on Wednesday kept interest rates unchanged. The commentary was largely dovish, as the central does not see any more hikes in 2019. Even as the development is expected to boost Indian rupee, it may remain largely a non-event for Indian stock market.

Any sentimental uptick, if any, should be utilised to trim long positions and protect profits at higher levels. A continued cautious outlook is advised for the day.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)