Gemstone Equity Research & Advisory Services

Monday Trade Setup: Steady Start Expected To The Day; Follow Momentum By Doing This

In a very resilient show for the day, the Indian equity markets recovered from the low point of the day to end with just minor losses. The NIFTY saw a negative opening and traded with modest losses in the initial trade. After a ranged move, the markets got weaker as the Index plunged lower. Just when it seemed that the markets may have a day filled with corrective actions, a sharp short-covering rally pulled NIFTY higher. At one point in time, the headline Index managed to recover nearly all its losses. It finally ended with just a minor loss of 21.30 points (-0.19%).

The markets are showing high resilience to even modest declines. The discomfort is so much evident with even a small decline that it leads to short covering from lower levels.  Even Friday’s pullback can be attributed to short covering as it has come with a sharp decline in cumulative Open Interest. Going ahead, some ranged consolidation cannot be ruled out while the markets attempt to test the upper edge of the rising channel. The volatility modestly declined as the India VIX came off by 0.43% to 24.5350.

Monday may see a steady start to the day. The levels of 11245 and 11290 will act as resistance points. The supports come in at 11100 and 11000 levels.

The Relative Strength Index (RSI) on the daily chart is 71.73; it stays neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above the signal line. Apart from a small white body that emerged on the candle, no other significant formations were seen.

The pattern analysis shows that the NIFTY is showing strong resilience to any corrective activities even at current levels. Presently, the Index trades above all its key moving averages and it is placed near the upper edge of the rising channel that it is currently trading in.

All and all, the narrowing of the trading range can be interpreted either way. In the present technical setup, it should not come as a surprise if the NIFTY shows some sharp corrective profit taking bout. However, given the current structure, there are no signs of any major downside happening and corrective moves, if at all there are any, are all likely to get bought in to. There are higher chances of the NIFTY attempting to test the upper edge of the rising channel. However, in the same breath, we recommend following the up moves while strictly trailing the stops at higher 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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