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Gemstone Equity Research & Advisory Services

Monday Trade Setup; Soft Start Likely; NIFTY May Be Showing Signs Of Distribution Unless These Levels Are Taken Out

The markets again staged a reluctant up move as it saw a surge on back of short covering to end a day with gains. The NIFTY saw a positive start to the day but soon pared the opening gains to trade flat. The most part of the session was spent in a capped range when the index oscillated in a limited band. It was the second half of the session which saw a spurt which took the NIFTY past the morning high point. After coming off a bit from there, the headline index finally closed with a net gain of 87.35 points (+0.68%).

>>CHART<<

The volatility remained unchanged as INDIAVIX rose just marginally by 0.24% to 19.6175. The spurt in the previous session was evidently caused by short covering as it is reflected by the reduction of the Net cumulative OI in NIFTY futures. With the market breadth getting slightly weak, unless the NIFTY takes out the 12960-13000 zone, it may be showing some signs of distribution at current levels. NIFTY’s behavior against this zone will be crucial going ahead of here.

Monday is likely to see a soft start to the day as we enter the expiry week for the monthly derivative series. The level of 12900 and 12965 will act as resistance points; the supports will come in at 12750 and 12635 levels.

The Relative Strength Index (RSI) on the daily chart is 71.38; it has got mildly overbought again. It remains neutral and does not show any divergence against the price. The daily MACD is bullish as it stays above the signal line.

A candle with a long lower shadow occurred on the charts. It closely resembles a hanging man formation, except that it has a small upper shadow which is usually absent in hammers and hanging man candles. However, in either case, it has a potential to stall a rally. A confirmation is required on the next trading bar.

The NIFTY has completed the classical measurement implication that arise after a breakout above the 12000 levels. Its consolidation near the 13000-mark and the present technical setup make it a ripe case for some consolidation taking place at current levels. With the NIFTY continuing to stay vulnerable to sharp profit taking bouts, we recommend continuing to approach the markets with a cautious view and focus more on protecting profits at current levels than chasing the rally so long as the Index is below the 12960-13000 zone.

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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