It was a day of range-bound consolidation for the markets. The NIFTY saw a flat start to the day and it traded in a range during the early minutes of the session. However, in the first hour of the trade, the markets witnessed a volatile shake out as the index slipped swiftly in the negative territory. It was during the next two hours of the session that the Index managed to recover from the lower levels; it recoupled all its losses and crawled in the positive territory. It got stronger by afternoon and went past the 17400 levels. A profit-taking wave gripped the markets again as the index pared all its gains. It finally ended with a negligible loss of 15.70 points (-0.09%).
The markets are in for some more consolidation. The SEP09 weekly options expiry data suggests that a large amount of Call writing was seen on 17400; the strikes of 17400 and 17500 hold the largest and near-similar accumulation of the Call OI. This means that the NIFTY is likely to see stiff resistance in this 100-point range; it is unlikely that the index will see any major movement on the upside unless it stays above 17400 for long. The volatility declined; INDIAVIX came off by 1.39% to 14.8950.
Wednesday may see a tepid start to the day. The levels of 17400 and 17485 will see strong resistance on the upside; the supports come in at 17310 and 17245.
The Relative Strength Index (RSI) on the daily chart is 82.24; it stays overbought but also remains neutral while not showing any divergence against the price. The daily MACD is bullish and above the signal line.
A spinning top occurred once again at higher levels. It has the potential to disrupt the present trend, or at least halt the current up move and push the markets into some consolidation. Such candles also reflect a lack of directional consensus among the market participants.
While the markets stay overbought, they are not showing any major sign of weakness. All intraday profit-taking bouts and shakeouts are being bought into; at the same time, chasing the momentum blindly at current levels will not be a wise idea a well. In the given technical setup, it is now suggested to shift the focus on not only defensive stocks but also the low-beta stocks. This will provide a natural hedge and protection if the markets witness any more profit-taking bout. While keeping the overall analysis on similar lines, we recommend continuing to stay highly stock-specific and vigilantly protect profits 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)
