Gemstone Equity Research & Advisory Services

Tuesday Trade Setup: Undercurrent Strong; NIFTY Still Stays Prone To Profit Taking Bouts

In a volatile day of trade, the NIFTY continued to advance and ended with a new high; however, that was not without a sharp profit taking bout in the first half of the session. The markets saw a much better-than-expected start to the day. After opening positive and staying range bound in the first hour, the markets came under a sharp profit taking bout. This saw the index paring some 80-odd points from the high point of the day. However, after slipping in the red and marking the day’s low, the NIFTY witnessed a remarkable rebound which saw itself moving past the 14100 levels once again. The headline index ended the day with a net gain of 114.40 points (+0.82%).

The markets are showing tremendous underlying strength and all correctives so far has either stayed intraday. The FO data showed maximum PUT writing today at 14100, though the level of 14000 holds the maximum PUT OI. Unless this changes significantly, the NIFTY may keep taking supports below 14000 levels. However, given the overextended nature of the markets and given the fact that they are overbought at this level, the up move in the markets must be followed cautiously. The volatility inched up again with INDIAVIX rising by 2.40% to 20.0300.

Tuesday might see some extension of the up move since the markets have ended near the high point. The levels of 14150 and 14235 will act as resistance points. The supports come in at 14035 and 13950 levels.

The daily RSI stands at 75.55; it stays overbought and continues to show a bearish divergence against the price. The daily MACD is bullish as it remains above the signal line. A Hanging Man pattern occurred on the Candles. The occurrence of such a pattern near the high point reminds us to stay cautious of any impending profit taking bouts.

The risk-on setup is forcefully on, the US Dollar continues to stay week, and all this is collectively fueling strong FII flows in the markets. The markets may continue to see some incremental move in the initial session; however, without disputing this strong undercurrent and buoyancy, markets need to be approached in an overly cautious manner as they stay vulnerable to profit taking bouts at higher levels.  

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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