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Monday Trade Setup: NIFTY Set To See A Positive Start To The Day; Avoid Shorts & Follow Upsides Cautiously

In the previous technical note, we had mentioned the levels of 14260 as a crucial level to watch as the NIFTY had consolidated marking high points during its short span on consolidation. The opening of the markets on Friday saw the Index opening just near this level. After a brief consolidation near this point in the first half of the day, the NIFTY penetrated this important level and went past it. There was no looking back for that day for the index as it just got stronger as the day progressed. The markets were able to hold on to its high point and ended the day with a strong close as it gained 209.90 points (+1.48%).

Despite staying overbought, the NIFTY has moved higher with strong force; in the process it has dragged its immediate support point higher at 14200. This was evident from the F&O data which showed heavy call writing at 14200 strikes. The NIFTY PCR (all expiries), though, is at 1.71 which is on the threshold of getting overbought. However, even while staying highly prone to volatile profit taking bouts, the NIFTY has made some room for itself for an up move from current levels with the level of 14200 acting as a very short-term support. The volatility mostly stayed unchanged.

With the markets closing at the high point of the day, and with the F&O data showing strong undercurrents, Monday may see a positive start to the day. The levels of 14445 and 14500 will act as important resistance levels; supports will come in at 14280 and 14200 levels.

The Relative Strength Index (RSI) on the daily chart is 77.38; it continues to stay in the overbought zone above 70. The daily MACD is bullish as it stays above the signal line.
A white body occurred on the candles. Apart from this, no other important formations were noticed.

Despite staying overextended and overbought, the NIFTY has surged higher with just two days of intermittent consolidation in between. This speaks volumes with regard to the strong undercurrent that the markets enjoy at present. However, the trajectory that the markets forms after opening on Monday will be crucial to decide the trend as the NIFTY stays prone to profit taking and some consolidation at higher levels. We recommend avoiding shorts as the underlying sentiment is extremely buoyant. However, momentum on the upside should be chased in a highly selective manner and while staying moderate on the overall exposure.

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)

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