Gemstone Equity Research & Advisory Services

Monday Trade Setup: Follow Moves In NIFTY; Do Not Ignore These Factors As Well

It was a day of mixed reactions for the Indian stock markets as the NIFTY50 marked a fresh lifetime high. However, it also retraced from higher levels and managed to maintain most of its gains. The markets opened on a positive note and stayed in a defined and capped range for the entire session. The intraday trading range of the NIFTY remained narrow; the Index oscillated hardly 60-odd points during the day. Although the NIFTY came off from its high point, the headline index ended a yet another day with a net gain of 97.80 points (+0.64%).

Although the markets have marked an incremental high point and appear to be largely bullish, there are few contradictory points showing up which should be kept in mind and not ignored. The NIFTY Futures have added over 5.25 lakh shares or 5.33% in June month contract. This indicates the addition of fresh longs. On the other hand, the options data has shown the maximum Call OI concentration stayed at 15500 and this strike continued to add Call OI throughout the day. This means that this level continues to act as a resistance and may put a breakout under question.

Further, NIFTY gained 97 points in the previous session; nearly 92 points came from Reliance. This means that NIFTY would have been flat if this had not happened. Also, the market breadth has not shown as much strength as it should have shown, and the intraday size of the movements has not shown any strong directional bias. All this points to a high degree of caution that market participants must exercise while chasing the momentum. With INDIAVIX coming off by another 12.59% to 17.4025, the volatility remains as one of its lowest levels of the recent past.

The levels of 15500 and 15535 are likely to act as resistance points. The supports come in at 15350 and 15300 levels.

The Relative Strength Index (RSI) on the daily chart is 66.20; it has marked a new 14-period high; however, it stays neutral and does not show any divergence against the price. Daily MACD is bullish and remains above the signal line. A spinning top that occurred on the candles continues to show the need of exercising caution at higher levels.

All in all, it is no way intended to convey that the things are outrightly bearish and it’s a matter of time that we will witness a large corrective move. However, what is being tried to convey through above description is that while we chase the momentum on the upside, we cannot afford to ignore the above mentioned mixed technical setup. This is the time when it is required the most to continue staying highly selective while making fresh purchases and place higher significance of protecting 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)

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