Market Outlook for Wednesday: Trade setup: Nifty needs to confirm breakout as lead indicators stay bearish

In a positive session for the domestic stock market, the benchmark indices surged to a lifetime highs on Tuesday. NSE Nifty made a better-than-expected opening and traded with substantial gains for most part of the session. The index showed no signs of retracement and closed 111.05 points or 0.92% per cent higher at 12,165.

The headline index attempted to cross the strong Double Top resistance at 12,103 on a closing basis. This has once again increased the possibility of a breakout. Traders will look for confirmation of this on Wednesday, as the behavior of Nifty against 12,103 will be crucial to watch to watch out for.

If the index has to move higher, it needs to sustain above the 12,103 level on a closing basis. Any slip below this will push the market into consolidation again.

The market is expected to make a positive start on Wednesday, and may inch higher while attempting a breakout if there are no negative overnight cues to deal with.

In the event of an upmove, the market will be in unchartered territory. The 11,210 and 11,245 levels may act as resistance at higher levels, while support may come in at 12,100 and 12,020.

The Relative Strength Index (RSI) on the daily chart stood at 62.99 and again showed a bearish divergence, as the indicator didn’t mark a fresh 14-period high along with Nifty.

The daily MACD remained bearish and traded below its signal line. The Percentage Price Oscillator (PPO) was negative. A white body emerged on the candles, and apart from this, no other formations were seen on the charts.

As per pattern analysis, Nifty has made yet another attempt to cross the double top resistance. However, it showed a lack of strength for a sustainable breakout. A lookout for confirmation will be necessary going ahead from here.

The current trade setup is resilient and it will be no surprise if the index attempts to break above the Double Top resistance. However, a confirmation will be required before any aggressive purchases can be made, as lead indicators continue to show bearish divergence.

The broader trade setup is attempting to turn bullish, and we would recommend traders to approach the market on a positive note and protect profits at higher levels unless a reliable confirmation of the breakout is seen. A positive outlook is advised for the day.

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