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Monday Trade Setup: NIFTY Placed At Crucial Levels; Chase Momentum Carefully

The Indian equity markets posted the seventh day of straight gains as it went to end the last trading day of the week on a higher note. After opening on a quiet note, the NIFTY slipped in the negative territory in the first hour of the trade for a brief time. The Index soon crawled back inside the positive zone and remained in the positive territory for the whole session. The markets went to test the highs by afternoon and stayed in a defined range after that. After a brief pullback, the NIFTY tested the high point again and finally ended with a net gain of 79.60 points (+0.67%).

From a technical perspective, the markets have ended on a high point. This may cause some minor incremental up move. However, we cannot disregard the fact that in last two weeks, the NIFTY has risen 1000-odd points and stays overstretched on the short-term charts. It would be no surprise if the NIFTY sees some selling pressure at higher levels or some profit taking bouts are witnessed. Some broad consolidation from current levels cannot be ruled out. The Options data suggests resistance in the 11900-12000 zones and these levels will be crucial from the immediate short-term perspective.

Monday may see a quiet start to the day. The levels of 11975 and 12020 will act as resistance points. The supports come in at 11860 and 11800 levels.

The Relative Strength Index (RSI) on the daily chart is 68.06 and it has marked a 14-period high which is bullish. Over the 14-period, the RSI is neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line. Apart from the white body that emerged, no other significant formations were noticed on the candles.

Going by the pattern analysis, the NIFTY has taken out the double top resistance that existed between the 11400-11430 zone. The Index has also taken out a falling trend line pattern resistance around the same area. This resistance existed in the form of a trend line that started from 11800 levels and joined the subsequent lower tops.

All and all, the markets have not shown any signs of any weakness as of now or has not given any negative close showing likely exhaustion of the trend. However, despite this, some minor cracks in form of not-so-strong market breadth is seen and some fatigue at current levels is also evident. Given such a setup, we recommend approaching the markets on a highly cautious note and avoid blindly chasing the up move from 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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