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Outlook For Wednesday: NIFTY Lowers Its Resistance; Staying Stock-Specific In Approach Will Help

The markets chose to take a breather after a percent of advance in the previous session as it oscillated in a 189-point range before ending the day on an absolutely flat note. The NIFTY saw itself opening with a mild gap-up following absence of any overnight cues and strong Asian markets, the NIFTY opened higher and marked its intraday high point in the initial minutes of the trade. However, the markets failed to capitalize on the strong opening as it went on to pare all the morning gains to trade flat in the afternoon. The selling pressure intensified, and this took the Index well inside the negative territory. However, the markets managed to recover and finally ended the day on a flat note with negligible loss of 1.25 points (-0.01%).

What happened in the markets on Tuesday was very much on the analyzed lines. In the previous technical note, it was mentioned that the markets may witness some incremental up move initially, but high beta stocks should not be chased. It precisely turned out to be the case as NIFTY Bank came off over 700-points at one point in time from its opening highs.  It was also mentioned that despite a rising window (a gap up on the candles) happening, this should not be singularly interpreted as a bullish sign unless accompanied with a confirmation on the next trading day.

The NIFTY has shifted its resistance lower as the maximum Call OI which was earlier at has now shifted to 15400. Another thing worth noticing was that there was much higher amount of Call writing being done with very little amount of Put writing taking place in the markets.

The volatility inched higher on the expected lines with the INDIAVIX climbing up 1.42% to 21.7800. Wednesday is likely to see a subdued start to the session. The levels of 15350 and 15430 will act as resistance points. The supports will come in at 15265 and 15100 levels.

The daily RSI is 71.40; it stands neutral and does not show any divergence against the price. The RSI, however, now stays slightly overbought. The daily MACD is bullish and stays above its signal line. A spinning top occurred again on the candles. This shows indecisiveness of the market participants at higher levels.

All in all, the NIFTY is struggling to stay afloat after a gain of over 1700-odd points from the day of union budget. If there are no signs of consolidation or minor correction, this up move may get unhealthy or find difficult to sustain. In other words, some corrective consolidation is highly overdue now. If the momentum in the high beta stocks continue, it should be chased in an extremely selective manner. The defensive stocks are continuing to witness resilient relative performance and it will continue to happen over the coming days. The overall market breadth is a cause of concern; this will need to be watched over the coming days. While staying light on leveraged exposures, a cautious and a highly stock-specific approach is advised or the day.

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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