Trade Setup: 14,250-14,300 crucial for Nifty, defensive stocks may catch up

The domestic equity market received the Union Budget with a big thumbs up as it saw one of its strongest performances on a Budget day and ended on a very robust note.

Headline index Nifty opened in the green, but pared gains in the morning session. However, it soon recovered before the Budget proposals started rolling in. Nifty reacted in a strongly positive manner to the Budget and went on to end the day with a very strong gain of 646.60 points or 4.74 per cent. Economy-facing stocks, mainly private banks, had a massive run-up as Bank Nifty squarely outperformed the rest of the sectors while it gained a whooping 2,523.55 points or 8.26 per cent.

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In a way, the absence of any negative was one of the biggest positives for the market. The FM chose not to tamper with any tax slabs, corporate or otherwise. There was no Covid-inflicted cess as well. The FM also did not flirt with STT or LTCG. Volatility declined substantially as India VIX came off by 7.97 per cent to 23.3225.

With the Budget out of the way now, it is time that we focus on the broader technical setup once again. What we saw in the previous session was a massive, short squeeze playing out. For Tuesday, the levels of 14,250-14,300 would be crucial as Nifty will have to stay above this area to extend its up move. If not, then we may again see Nifty consolidating with the levels of 14,100 and 14,050 acting as basic support points.

The Relative Strength Index (RSI) on the daily chart stood at 54.73; it stayed neutral and did not show any divergence against price. The daily MACD was bearish and remained below its Signal Line.

A large while candle appeared on the charts at the 50-DMA level. A pattern analysis of the daily chart revealed that that the market had held on to its support of 50-DMA at 13,770. It is now a major support point in the near-term on a closing basis.

Although economy-facing stocks like private banks, financial services, etc gave a spectacular up move, chasing them at current levels without any consolidation would be tricky and risky. We recommend not chasing these stocks blindly but approach them on their own respective merits. We also expect defensive plays to catch up. Avoid shorts and approach the market in a highly stock-specific way while protecting profits at every level.

(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)