Gemstone Equity Research & Advisory Services

Monday Trade Setup: NIFTY Stays Inherently Strong; Keep These Two Things In Mind While Approaching Markets

In a narrow range session on Friday, the Indian equities stepped into the new year on a quiet note, consolidation in a strong way and ended the day with modest gains. The NIFTY saw a positive start to the trade, and it stayed positive throughout the session. However, the markets remained within a very limited and defined range for the entire day. It showed some strength in the second half of the trade, but the last hour saw some paring of gains which kept the overall gains under check. Finally, the NIFTY closed while on a modestly positive note gaining 36.75 points (+0.26%).

As we step into next session, we need to keep two contradictory things in mind. One, the NIFTY stays highly overextended on the short-term charts and is due for some ranged consolidation, if not correction, in the immediate term. Second, on the other hand, the markets are not showing any signs of a let-up; the futures data shows that the NIFTY January series added over 6.07 lakh shares or 5.15% in the Open Interest which shows underlying buoyancy. The volatility also declined sharply as the INDIAVIX declined by 7.28% to 19.5600.

Monday is likely to see a quiet start to the day again. The levels of 14050 and 14110 will act as potential resistance points. The supports come in at 13910 and 13860.

The Relative Strength Index (RSI) on the daily chart is 73.18. It stays mildly overbought and continues to show a bearish divergence against the price. The daily MACD is bullish and remains above the signal line. A spinning top occurred on the candles. This requires us to continue approaching the markets with caution as we follow the current momentum.

The pattern analysis of the daily chart shows that the after breaking out from the 12000-levels, the NIFTY has intermittently formed a base; the first at 13000 and the other at 13800 levels. So, in the current process, if any corrective move occurs, then the first short-term support exists at 13800 for the markets.

All and all, there is not dispute to the fact that the undercurrent in the markets stays extremely strong. However, if any ranged consolidation happens at either current or slightly higher levels, it should not come as a surprise to the market participants as the same is now overdue. We recommend continuing to follow momentum by trailing stop-losses in the strictest possibly ways. All profits at current and higher levels should be very vigilantly protected.

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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