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Outlook For Wednesday: NIFTY Shows Enough Warning Signs; Use Up Moves For Doing This Instead Of Chasing Them

Following a strong overnight handover from the US markets, the Indian equities extended their up move and ended yet another day with gains. The Markets saw a positive opening for the day but pared most of the gains in the morning session. The momentum picked up again and the Index spent the remaining part of the session recouping the lost gains. NIFTY managed to recover most of the gains and finally ended with net gain of 93.95 points (+0.74%).

From the technical perspective, the markets are giving us chances, more than once, to protect profits at current levels. It was the second day in a row that the NIFTY formed a candle like a “hanging man”. Such a formation, if it is coming following a substantial up move is an enough warning sign for any impending corrective move. The volatility rose, and this was reflected in INDIAVIX that inched higher by 3.52% to 19.8025. With markets in uncharted territory, in overbought zone and having completed all the technical price targets now stands clearly vulnerable to sharp profit taking bouts.

Wednesday is likely to see the levels of 12930 and 12980 as potential resistance points. Supports come in much lower at 12850 and 12710. Any profit taking bout will make the trading range wider than usual.

The RSI stands at 7760; it is overbought but remains neutral as it does not show any divergence against the price. The daily MACD is bullish and trades above the signal line.

A Hanging Man candle appeared on the charts. The formation of such a candle can be potentially bearish if it occurs following a steep uptrend, which is the case with NIFTY in the present setup.

The NIFTY has surpassed all possible technical targets which it should have achieved following a breakout from the 12000 levels. We are not disputing that fact that the present rally has got global reasons attached to it. However, in the same breadth, it is high time that one should stop chasing the markets blindly. There are times, when the up moves should be used to protect profits and not for making fresh purchases.

As stepping into the new session, we would reiterate to use any extension of moves on the upside to protect profits. Fresh purchases should be refrained from or should be kept extremely defensive and in moderate quantities. The NIFTY is overstretched despite all justifiable reasons and remains prone to sharp profit taking bouts from 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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