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Monday Trade Setup: NIFTY Likely To See A Steady Start; Price Action Against These Levels Crucial Over Coming Days

In a strong move that the markets saw on Friday, the Index made a fierce attempt to move pas the 200-DMA after having resisted to it for over the past several days. The Index opened on a positive note but traded with capped gains for the most part of the day. However, the second half of the session saw markets gathering more strength and went on to test the all important 200-DMA. The headline index managed to close a notch above that level with a net gain of 161.75 points (+1.51%).

Monday’s opening of the markets and its behavior against the 200-DMA, which is presently at 10869 will be extremely crucial to watch. For the NIFTY to attempt extension of the current move, it will have to keep its head above this crucial level. From the weekly perspective, the NIFTY has close near the 50-Week MA. So, market behavior in this week against these two crucial levels will decide the trend over the immediate short-term. Volatility continued to decline as the INDIAVIX came off by 4.75% to 24.1575.

Monday is likely to see a steady start to the day. The levels of 10930 and 10985 will act as resistance points. The supports will come in at 10835 and 10750. 

The Relative Strength Index (RSI) on the daily chart is 67.19. The RSI has shown a clear bearish divergence against the price. While NIFTY marked a 14-period high, the RSI did not do so. The daily MACD is bearish and trades below its signal line. Apart from a white body that emerged on the candles, no other formations were noticed.

The pattern analysis shows that the NIFTY continues to remain in the upward rising channel that it has created after the rising wedge resolved in a continuation formation. In the process, the NIFTY has managed to move past all its key moving averages.

In order to continue moving higher, the NIFTY will have to move out of the filter of the 200-DMA level. If this happens, we will see some renewed strength in the markets. However, given the relentless up moves in the markets, the stage is ripe for some consolidation. The reason that some mild corrective moves, or some consolidation is imminent is that in the present form, the moves are getting unhealthy at higher levels. In fact, even if some consolidation happens, it would be healthy for the markets in the long run as risk-reward ratio stays highly skewed at present. A cautious approach to the markets is advised for the day.

Milan Vaishnav, CMT, MSTA
Consulting Technical   Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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