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Monday Trade Setup: NIFTY To See A Stable Start; Trailing Stop-Losses Gets All The More Important Now

It was a yet another day of a range-bound move by the Indian markets as the NIFTY oscillated in a tight range before ending with minor losses. The markets saw a quiet start to the trade on the expected lines. The Index traded in positive territory in the first hour of the session where it also marked its intraday high. Soon after that, NIFTY slipped in the negative territory where it spent most part of the session. However, the index moved in a capped range and did not take any definite directional bias. At the end, the headline index settled with a small loss of 20.10 points (-0.13%).

The NIFTY may again see a positive start to the day. The volatility remains at its lowest levels in the recent months, and this warrants us to guard against the possible reactionary move. However, there are no such signs that point towards any major drawdown but from now on, while chasing the momentum, trailing stop losses and protection of profits at current and higher levels will be a must. The options data suggest that the levels of 15700-15800 pose very stiff resistance to the NIFTY. The volatility increased as the INDIAVIX rose by 1.24% to 15.9400.

Although NIFTY now is in uncharted territory, the levels of 15725 and 15790 will act as resistance points. The supports will come in at 15580 and 15500 levels.

The Relative Strength Index (RSI) on the daily chart is 70.32; it is in overbought zone but remains neutral as it shows no divergence against the price. The daily MACD is bullish and remains above the signal line.

The pattern analysis shows that the breakout that occurred as the NIFTY moved past the previous lifetime high of 15430 is very much valid and remains in force. This breakout has also shifted the support levels higher for the NIFTY at 15430.

Although the NIFTY is rising with small real bodies as it indicates sessions with very less intraday range, so long as the momentum continues, it should be followed in that direction. However, the present technical setup also very strongly suggests that while the momentum is chases, it would be very wise and prudent to keep trailing stop-losses in place. This will not only prevent getting caught at any stage, but it will also protect the bulk of the profits at higher levels. While continuing to remain selective in making fresh purchases, 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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