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Monday Trade Setup: NIFTY To Remain Tentative; Not Out Of The Woods At All

In an extremely eventful session, the Indian equity markets managed to defy the global weakness after opening on a very weak note in the previous session. Following a rout overnight in the US Markets, the Indian equities opened with a gap-down. The opening saw the markets opening near the pattern support level and managed to defend the opening lows throughout the day. Not only was the opening low was defended, the Index managed a massive over 450-point recovery from the low point. Not only did the headline index managed to move in the positive territory, it ended with a modest gain of 70.90 points (+0.72%).
 

It is important to note that the session on Thursday had added fresh shorts in the system. Following a gap-down opening, the markets a massive short-covering from the lower levels which fueled the big recovery that we saw in the previous session. Having said this, it is also noteworthy that the NIFTY futures have shown a net decline in the Open Interest, and this makes the short covering much evident that anything else.

 
Monday is again likely to see a bit jittery start to the day. The levels of 10035 and 10090 will act as resistance points. The supports will come in at 9910 and 9815 levels.
 
The Relative Strength Index (RSI) on the daily chart is 59.66; it stays neutral and does not show any divergence against the price. The daily MACD is bullish and it trades above the signal line. However, the sharply declining slope of the histogram shows that that indicator might show a negative crossover over the coming days.
 
A big white body emerged on the candles. The occurrence of such a candle near the support reinstates the importance of the support of the rising trend line of the channel.
 
The pattern analysis suggests that the NIFTY remains in the upward rising channel after the rising hedged resolved as a continuation pattern. Presently, the Index trades above its 50-DMA and below its 100-dMA on the daily chart.
 
We reiterate that the massive pullback that was seen in the previous session should not be misunderstood as a strength of the markets. The recovery was on account of a massive short covering from the lower levels. Unless the NIFTY moves past the 100-DMA which is presently at 10206 and closing above that, it will get vulnerable to sharp selloffs from higher levels. We strongly suggest continuing to use all up move to make exit in profitable positions and adopt a cautious and stock-specific view on the markets 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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