In the previous technical note, it was mentioned that the Indian markets will be inheriting the overnight global trade setup following announcements by the FOMC. The Fed’s comments on tapering were taken positively by the US Markets; they ended higher and handed over the baton to the Asian markets in the morning. Taking cues from a strong trade setup, the Indian equities opened higher. NIFTY started on a positive note and grew only stronger as the day progressed. The index remained in the upward rising trajectory throughout the day and showed no signs of volatility at all. The headline index ended with strong gains of 276.30 points (+1.57%).
The NIFTY has formed yet another closing high. The markets are again in uncharted territory; however, this time, they remain heavily prone to profit-taking and some consolidation at higher levels. The weekly options expiry went off well; the options data show a very high accumulation of Calls OI at 18000 levels. In all probability, NIFTY may have limited upsides from here; it is time that we use any up move that we get more to protect profits than making any aggressive purchases. The volatility remained near-absent; the INDIAVIX rose marginally by 0.67% to 16.6025.
Friday is likely to see a stable start to the day. The levels of 17840 and 17895 are likely to act as resistance points. The supports come in at 17730 and 17680. In the event of any consolidation, the trading range is likely to stay wider than usual.
The Relative Strength Index (RSI) on the daily chart is 77.35; it now trades in the overbought zone. While the NIFTY made a new 14-period high, the RSI did not. This has resulted in a negative divergence of the RSI against the price. The daily MACD continues to stay bearish and below its signal line.
A rising window occurred. This usually occurs following a gap up and resolves in the continuation of the uptrend. However, amidst the present technical setup, it will require a confirmation on the next bar.
The pattern analysis shows that after a minor violation of the basing point near the 17350-17400 zone, the NIFTY has rebounded on its way for a fresh high. If the NIFTY stays above 17800, it will form a fresh basing point at this level. As of now, it has attempted a fresh breakout.
The technical setup, read along with the F&O data shows that the markets may be inherently very strong and bullish, but it has limited upsides from here. Some amount of minor profit-taking or a range-bound consolidation seems imminent at present levels. It is strongly recommended at this stage that all up moves from hereon must be used to protect profits on long positions rather than making fresh purchases. All fresh buying must be kept limited in terms of quantity and concentrated in low beta stocks with improving relative strength. A continued cautious view is advised for the day.
This was first published by The Economic Times.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)
