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Tuesday Trade Setup: NIFTY Overbought As Per These Figures; Approach The Present Technical Structure Like This

On a day of yet another unabated up move, the markets extended its move on the upside while ending with gains. The markets saw a better-than-expected start to the day. After opening on a stronger note, the Index maintained its gains, though it moved in a narrow 40-point range throughout the day. The session remained somewhat jittery, but NIFTY was able to maintain its gains. After a range bound but erratic moves during the day, the headline index ended the day with a net gain of 120.50 points (+1.11%).

The PCR – Put Call Ratio has moved past 1.80 which shows that the markets are clearly overbought in the near-term. The India VIX, which represents volatility, also rose marginally by 2.30% by 24.7125. Regardless of the situation where the Market extends its up move or not, the present technical setup has become extremely skewed in terms of risk-reward that short-term traders should refrain from creating any major long positions unless some consolidation happens in the near term.

Tuesday will see the levels of 11045 and 11150 as resistance points. The supports come in at 10950 and 10860 levels.

The Relative Strength Index (RSI) on the daily chart is 69.90. The RSI has shown an evident bearish divergence against the price. The bearish divergence as occurred as the NIFTY marked a fresh high, but the RSI did not mark a 14-period high. The daily MACD is still bearish as it trades below its signal line.

A rising window occurred on the candles. This results out of a gap and usually translates in a bullish continuation of the trend. However, this will need confirmation on the next trading day.

The pattern analysis shows NIFTY edging higher while comfortably placed in the upward rising channel. Presently, the index trades above all its key moving averages.

If we examine a technical setup from a very short-term perspective, the markets stay overbought and is also lacks the internal strength that it would otherwise need to sustain such higher levels. The PCR of over 1.80 cannot be overlooked; the lead indicator like RSI is also showing a continued bearish divergence against the price.

It may so happen that the Index may be propelled higher, but a very few select stocks for some time. However, that would mean that the broader participation may be absent. We recommend short-term market participants to refrain from creating any significant long exposures and focus more on taking profits home at current 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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