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Tuesday Trade Setup: NIFTY Face Diminishing Momentum At Higher Levels; This Would Be The Prudent Way To Approach Markets

In the previous note, we had categorically mentioned the 200-DMA as one of the major resistance levels for the NIFTY. In line with this analysis, this level posed a stiff resistance once again to the Index. The markets saw a gap up opening; this ensured that the NIFTY opens exactly at the resistance point. After a strong start, the markets spent rest of the session paring all the opening gains. While failing to capitalize on the strong opening, the NIFTY not only gave up all the gains, but also slipped in the negative territory briefly. After a mild recovery from the low point, the headline index managed to end the day with a mild gain of 34.65 points (+0.32%).

Markets have continued to show multiple signs of fatigue at current levels. The Volatility saw a modest increase as the IndiaVIX, which is at one of its lowest levels of recent times rose by 1.24%. It was for the sixth day that the NIFTY has not been able to penetrate the 200-DMA, which presently stands at 10885. The other signs that point towards diminishing momentum makes this level of 10885 a major resistance for the markets in the near term.

Tuesday is likely to see a soft start to the day. The levels of 10850 and 10890 will act as overhead resistance point. The support will come in much lower at 10710 and 10665 levels. Any corrective move is set to make the trading range much wider than usual.

The Relative Strength Index (RSI) on the daily chart is 68.38; it stays neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above the signal line. However, the slope of the Histogram suggests the diminishing momentum in the up move. A black body emerged on the Candles, apart form this, no other formations were noticed.

The pattern analysis shows the NIFTY taking strong resistance near the 200-DMA, which is currently at 10885. No major up move is likely unless the NIFTY moves past this level convincingly on a closing basis.

The decline from the opening highs in the previous session have come with a decline in net Open Interest. This shows unwinding from higher levels. So long as NIFTY rules below 200-DMA on a closing basis, the markets in general will stay vulnerable at higher levels. We reiterate our view of keeping fresh purchases highly stock-specific in nature. Guarding the profits vigilantly at higher levels will be a more prudent method of approaching the markets amid present technical setup.

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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