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Outlook For Wednesday: NIFTY Shows Very Strong Undercurrents; Still Stays Prone To Profit-Taking Bout

After some initial consolidation in the early morning session, the markets continued its unending up moves and went on scale a yet another dizzying height as it ended the day posting decent gains. The NIFTY saw itself opening on a quiet note on the expected lines. The first two hours of the sessions saw the index trading in a range bound manner as it formed the low point of the day. In the late morning, the NIFTY crawled in the positive territory. For the remain part of the day, the Index kept marking incremental highs as it stayed in the rising trajectory. Finally, NIFTY closed while posting net gains of 78.70 points (+0.54%).

Important thing to notice was the net gains in NIFTY were contributed mainly by just wo stocks; HDFCBANK and RELIANCE. However, most of the gains came from MidCaps which grossly outperformed the mainline index. Another striking thing to observe was the market behavior of heavy PUT writing the moment it passed the 14500 levels. This level saw highest PUT writing during the day, however, the maximum PUT OI still stays at 14200. It would be crucial to see the markets staying above 14475-14500 levels to maintain buoyancy. On the other hand, the maximum Call OI shifted further away to 15000 levels.

Markets are highly overextended; are due to come in for sharp consolidation at any moment now. The levels of 14550 and 14655 will act as resistance points. The supports will come in at 14470 and 14400 levels.

The Relative Strength Index (RSI) on the daily chart is 80.94; RSI has marked a new 14-period high but continues to stay grossly overbought. The daily MACD is bullish as it stays above the signal line.

A white body emerged on the candles. It confirmed the previous candle’s rising window formation and showed continued trend on the upside.

Markets are now got highly overextended than ever before. This signals the requirement of high degree of caution as we continue to approach it. Importantly, given the strong undercurrents, shorts should be strictly avoided even if the markets show some temporary blip because of probable profit taking from higher levels. Unless there is a specific sign of any topping out of the markets, selective purchases may be made while refraining from the shorts. However, as often reiterated in our previous notes, new purchases should be kept at very modest levels, in selective and defensive stocks, and profits should be protected vigilantly protected at every level.

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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