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Friday Trade Setup: NIFTY Likely To See A Tepid Start; Buy Less, Stay Defensive, Protect Profits At Current Levels

In a range-bound yet buoyant day, the stock markets resumed their up move following two days of consolidation. The NIFTY opened higher, stayed within a defined range, and ended the day with gains. The Index saw a positive start to the day following a supportive trade setup; it maintained its gains through the day while it oscillated in a 100-odd points range. The expiry of the weekly options largely governed the upper and the lower end of the trading range; however, this remained largely on the expected lines. The headline index ended the day piling up gains of 114.15 points (+0.73%).

As anticipated, the session was largely affected by the weekly options expiry. The maximum Call OI concentration stayed at 15700; this prevented the NIFTY moving past this level at close. Max PUT OI also remained constant at 15600; this made sure the index bounced back from this point. However, as we approach the coming days, the markets need to be approached with ultra-high degree of caution as the NIFTY has not only got a bit overbought, but the volatility also stays at very uncomfortably low levels. The current setup has increased the possibilities of the markets slipping in some consolidation or seeing measured corrective moves.

Friday is likely to see a soft start to the day. The levels of 15735 and 15780 will act as immediate resistance points; supports will come in at 15580 and 15500 levels.

The Relative Strength Index (RSI) on the daily chart is 71.38; it has made a fresh 14-period high which is bullish. The RSI has entered the overbought area; it remains neutral and does not show any divergence against the price. The MACD is bullish and remains above the signal line.

The NIFTY is now in uncharted territory. It achieved a breakout when it moved past the previous lifetime high point of 15431. In the process, it has raised the supports higher; the zone of 15400-15431 now remain most important support zone for the markets in the near term.

The undercurrent in the markets remain undoubtedly strong; however, the present technical setup on the charts has made risk-reward ration highly skewed when it comes to buying new positions. It would not be a surprise if the markets are pushed into some consolidation at this point or at slightly higher levels. In any case, we recommend that when it comes to making fresh purchases, it would be prudent to stick to defensive stocks and sectors. This will help market participants to manage their risks better if any corrective moves or a range-bound consolidation occurs. While continuing to follow the up move, a highly cautious approach is advised for the day. It may not yet be the time to go short, but it is certainly the time when one would protect profits and take some money off the table, or at least create a hedge for the long positions.

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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