Gemstone Equity Research & Advisory Services

Friday Trade Setup: A Likely Intermediate Top For NIFTY At This Level; Avoid These Stocks

On the weekly options expiry day, the markets behaved exactly on the anticipated lines and ended the day with a deep cut. In the previous technical note, it was mentioned that in all probability, the level of 12000 has become an intermediate top for the markets. Unless the markets move past that, the markets are staring at a profit taking bout at current levels. In line with this analysis, the NIFTY opened on a modestly positive note. However, after this, it marked its day’s high in the early seconds of the trade and then slipped in the negative zone. It stayed negative and the weakness intensified in the second half of the session. While breaching the 11700 levels, the NIFTY ended the day with a net loss of 290.70 points (-2.43%).

From the technical perspective, since the markets have ended near the low point of the day, some follow-up weakness in the markets cannot be ruled out. However, though some mild pullback can also be expected, the broader setup remains weak. Thursday’s session was also important as it has marked the level of 12000 as an intermediate top. Unless the markets move past 12000 again, any sustainable up move is unlikely and each move on the higher side with invite profit taking bouts from higher levels. The volatility surged as the INDIAVIX shot up by 9.14% to 22.0575.

Friday is likely to see the levels of 11750 and 11810 as the resistance points. The supports come in at 11610 and 11565 levels.

The RSI on the daily chart is 55.10; it stays neutral and does not show any divergence against the price. The daily MACD is still bullish and trades above the signal line.

A large bearish engulfing candle emerged on the charts. This candle marks the level of 12000 as a potential top; since it appeared near the resistance point following a significant up move, it also potentially disrupts the present up move.

All in all, given the near-vertical nature of the decline, some minor pullback cannot be ruled out. However, it is strongly recommended that any such technical pullbacks should not be kept. While avoiding high beta stocks, focus is recommended on low beta defensive stocks which will offer greater resilience since volatility is likely to increase in the near term. While avoiding aggressive purchases, a continued cautious approach is suggested for the day.

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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