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Outlook For Wednesday: Strong US Dollar and Yields To Affect NIFTY; Upsides To Stay Limited In Extent

The Indian equity markets saw a sharp upsurge as it made up for one trading holiday on Monday as it aligned with the global trade. The markets saw a gap-up opening and got stronger as the day progressed. After opening on a robust note, the Index strengthened and by afternoon, it successfully maintained its gains. It was a range-bound trade in the afternoon, after which the NIFTY resumed its up move as it got stronger. The markets managed to end near the high point of the day as it steadfastly managed to maintain and hold on to its gains. The headline index closed with a robust gain of 337.80 (+2.33%).

We enter the penultimate day of expiry of the weekly options, and also the penultimate day of the current week as Friday is a trading holiday. The NIFTY has managed to move past the 50-DMA which presently stands at 14769. Ideally, this level is now supposed to act as a support on a closing basis. This being said, it is important to note that the NIFTY still remains very much inside the falling channel that it has created after forming a high point near 15430. The falling trend line resistance presently stands near 14950; the weekly options data also suggest maximum Call OI at 15000 which now keeps the upsides in the market capped near this point.

US Bond yields have spiked again; the Dollar Index now stands above 93 while this is being written. Wednesday is likely to see the levels of 14900 and 14955 acting as resistance points. The supports come in at 14750 and 14710.

The Relative Strength Index (RSI) on the daily chart stands at 51.73; it stands neutral and does not show any divergence against the price. The daily MACD is bearish; it remains below its signal line. A rising window occurred on the candles. This essentially results out of a gap and has bullish implications; however, the present gap has occurred inside a pattern and therefore it is an area gap and has little significance within the present technical setup.

All in all, even if the NIFTY shows some incremental upsides, it has the up moves capped in the next 100-odd points range. Also, it would be prudent not to ignore the strengthening Dollar Index and the spike in yields. The defensive nature of the markets seems to be in force again as the IT stocks and the FMCG have started to again improve on their relative strength against the broader markets. Such defensive pockets are likely to relatively outperform the broader markets. We reiterate that staying stock-specific and protecting profits at higher levels will be important. A cautious approach towards the market is advised for 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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