Gemstone Equity Research & Advisory Services

Outlook For Wednesday: NIFTY May Attempt Incremental Upsides; Likely US Dollar Pullback Stays A Risk

The bulls refused to let go of their grip on the markets as the Indian equities resumed its surge to end the day with a decent gain. The start to the day was a bit jittery on the expected lines. The NIFTY opened with a on a decently positive note but soon pared all its morning gains by late morning trade to trade flat near the previous closing levels. The benchmark, however, spent the remaining part of the day recouping the morning gains. It got stronger as the day progressed and moved past the psychological 11500-mark. The headline Index ended the day with a net gain of 81.75 points (+0.71%).

The level of 11500 has seen maximum amount of put writing on Tuesday, while calls at 11400 and 11500 levels saw significant short covering. The NIFTY has not only been able to stay above 11430, it has also attempted to move past the 11430-11500 zone as well. So long as the NIFTY stays above 11430, the risk-on approach will sustain for some more time, though the risk-reward ratio will continue becoming unfavorable with such up moves. The volatility continued to soften; the INDIAVIX came off a bit more by 2.80% to 20.5975. The NIFTY has made a lower high but higher bottom on the daily bar charts. 

Wednesday is likely to see a stable start to the day. The levels of 11545 and 11590 will act as resistance points. The supports come in at 11430 and 11365 levels.

The Relative Strength Index (RSI) on the daily chart is 58.65; it continues to remain neutral and does not show any divergence against the price. The daily MACD is bearish as it trades below the signal line. A small white body occurred, apart from this, no other formations were noticed on the candles. 

The pattern analysis shows the NIFTY now well outside the large rising wedge that it had formed. The wedge is large enough to look like a upward rising channel; however, the Index is now well out of this pattern. The important level now is the 11430, which was the double top resistance for the markets. The NIFTY has attempted to take out this level again in the previous session by staying above it and building up some more gains above that level. 

All in all, there are chances that we might see some incremental up moves coming in so long as the NIFTY is able to stay above the 11430 levels. However, this will also translate into some riskier setups as the risk-reward ration would start getting unfavorable with each higher level. However, the present technical setup suggests avoiding aggressive shorts while continuing to follow momentum cautiously. We recommend continuing to trail stop losses to protect profits at higher levels. A cautious approach is advised for the day.

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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