Gemstone Equity Research & Advisory Services

Monday Trade Setup: NIFTY Likely To See A Soft Start: Risk-Reward Remains Highly Unfavorable

The NIFTY went on to post yet another incremental high, but the fatigue at higher levels remained evident in the markets. Friday’s session saw the index inching higher as the NIFTY market its fresh high in the first hour of the session. However, after that, the markets retraced from its high point and largely remained range-bound for the rest of the session. After giving up most of its gains at one point in time, the NIFTY pulled itself back in the afternoon session. The headline Index finally ended the day with a net gain of 61.60 points (+0.39%).

From the technical perspective, the NIFTY is at a stage and level where the risk to reward ratio is extremely unfavorably placed when it comes to chasing the momentum. Unless the adequate trailing stop-losses are in place and strictly adhered to, there are greater chances of one getting trapped on a wrong foot. The volatility showed a fresh decline; the INDIAVIX dipped by another 6% to 14.1025.

The markets are giving ample signs to protect the existing profits at present levels. Such low levels of VIX are indeed precarious and longer it remains at such lower levels, greater are the chances of a violent spike in volatility. NIFTY is likely to see a soft start to Monday. The levels of 15830 and 15885 will act as resistance points; supports will come in at 15700 and 15630.

The Relative Strength Index (RSI) on the daily chart is 69.87; it again shows a strong bearish divergence against the price. The daily MACD is bullish but the slope of the histogram shows continued deceleration of momentum.

The pattern analysis shows that the NIFTY had a breakout as it moved past 15430, had a classical throwback to the breakout point, and resumed its up move. While reaching current levels, it has shown deceleration of momentum and some classical signs of fatigue and distribution as well.

The analysis for Monday stays much on the similar lines. We recommend avoiding aggressive purchases at current levels. So long as the NIFTY keeps inching higher, one can follow the momentum but with strict trailing stop-losses in place. The emphasis from now on should be more on protection of profits at higher levels than adding to leveraged positions. While continuing to stay light on overall exposure, a cautious outlook 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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