Gemstone Equity Research & Advisory Services

Outlook For Wednesday: NIFTY Shows Mild Signs Of Distribution; Fresh Buying Only Above This Level

It was a day of severe consolidation for the markets as the NIFTY oscillated in a very narrow and defined range to end the day with a modest gain. The markets opened positive, but soon pared those opening gains to trade on a flat note. After heading nowhere, the NIFTY saw some selling pressure which took the index below 10700 mark briefly. The NIFTY recovered again but only to trade in a sideways trajectory. In the end, while taking no directional cues, the headline index ended with a modest gain of 36 points (+0.33%).

While showing initial signs of distribution at present levels and closing just below the key resistance zone, the NIFTY throws mixed signals for the road ahead as it also went on to add fresh shorts in the system. This was reflected in the futures price, whose discount widened against the spot. The strikes of 11000 continues to hold maximum concentration of Calls OI followed by 10800. This makes situation little tricky for the markets.

Wednesday is likely to see a quiet start to the day. The levels of 10835 and 10860 acts as overhead resistance point. The supports come in lower at 10710 and 10625 levels.
The Relative Strength Index (RSI) on the daily chart is 72; it has marked a fresh 14-period high which is bullish. However, RSI is neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above its signal line.
A Doji emerged on the candles. Such a formation occurring following a strong rally and when the markets are overbought is not a comfortable sign for the markets. It has a potential to halt the rally in the near term and cause the markets to show some corrective moves.
There are no doubts, as mentioned in the previous note, that the liquidity gush is fueling the markets. Under such technical setups, a few technical levels tend to get violated. However, this does not justify throwing caution to the wind. We recommend staying away from making fresh purchases unless the NIFTY moves past the 200-DMA and closes above that level with conviction.
The markets in general, are at a place where some corrective moves are imminent. If they do not come, then such a technical setup is getting highly risky and unhealthy in the near term. While adopting high degree of caution, any moves on the higher side should be only used to protect profits and any significant buying should be avoided at present levels.
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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