Gemstone Equity Research & Advisory Services

Tuesday Trade Setup: NIFTY Pushed By Liquidity; Traders Need To Vigilantly Trail Their Exits Because Of This

The equity markets had a much buoyant and better than expected start to the week as they opened higher, got stronger during the day, and ended the day with a decent gain. Even when the US Markets were shut on Friday, the Asian markets opened higher on back of strong gains in the Dow futures. Regardless of any other thing, the liquidity continued to propel the markets higher without showing even the smallest sign of any intent to correct. After testing a level just above 10800, the NIFTY came off a bit but still ended with a decent gain of 156.30 points (1.47%).

The markets are presently being propelled higher driven by an established risk-on environment and a massive liquidity push. While the markets continues to play little heed to a few important resistance point, they have got overbought on the daily chart in the process; they have reached at a stage where upper targets matter little; and all one can do is to keep trailing their stop losses to protect profits at these levels. Any fresh chase is now set to make risk-reward most unfavorable of recent times. The volatility continued to slide as the INDIAVIX declined by 2.21% to 25.1975.

Going ahead, the 200-DMA remains the most important resistance point for the markets. It presently stands at 10887. Apart from this, the current zone of 10760-10800 needs to be watched. The supports, on the other side, come in much lower at 10685 and 10600 levels.
The Relative Strength Index (RSI) on the daily chart is 71.30; it is neutral and does not show any divergence against the price. RSI is now in overbought zone. The daily MACD is bullish as it trades above the signal line. A rising window occurred on the candles. This results out of a gap up and usually implies a continuation of the upside; however, this also need confirmation on the next trading day.
The pattern analysis shows that while continuing to stay within the upward rising channel, the NIFTY is inching higher towards the 200-DMA mark. Currently the index is mildly overbought and is set to enter a slightly broad but one of the strong resistance zones of the recent times.
While not disrespecting the fact that strong liquidity driven rallies tend to disregard some key technical levels, in the same breath, chasing such rallies blindly would not be prudent as well especially at current levels. While traders have no option to keep chasing the rally and the trend so long as it lasts, it should be done prudently and selectively while adopting a cautious approach towards the markets. We recommend trailing exits and protect profits vigilantly 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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