Gemstone Equity Research & Advisory Services

Thursday Trade Set up: NIFTY Fails The Attempted Breakout; This Lead Indicator Does Not Paint A Pretty Picture

Much on the anticipated lines, the Indian equity markets took a corrective beating and closed the day with a deep cut. After opening on a strong and better-than-expected note once again, the NIFTY soon pared its gains in the first hour and half of the trade. After slipping in the negative, the index continued to trade with modest losses in a range bound way.  However, the corrective move intensified in the late afternoon trade as the NIFTY slipped below crucial supports. While the markets in general showed no tendency to reverse the losses, the headline Index ended wit ha net loss of 196.75 points (-1.51%).

The session stayed very important from the technical perspective. Not only did the NIFTY failed the breakout on the expected lines, but it has also formed a classical bearish failure swing on the lead indicator. The zone of 12960-13000 now stays sacrosanct support and despite a one-time violation, this remains an intermediate top for the markets at least for the near term. The volatility also spiked on the analyzed lines as the INDIAVIX spiked by 9.83% to 23.1275.

The next session has weekly options expiry and also the monthly derivative expiry coming up. The levels of 12900 and 12965 will act as resistance; the supports will come in at 12785 and 12700 levels.

The RSI on the daily chart stands at 65.44; it has slipped below 70 from an overbought zone which is bearish. The RSI also shows a classical bearish failure swing. RSI tested high around 78, slipped lower, pulled back but did not move the previous high and slipped again below the point from which it pulled back. The daily MACD is bullish and remains above the signal line. However, the sharply narrowing slope of the histogram suggests that a negative crossover may happen over the coming days.

A large bearish engulfing candle occurred. This has happened at the highest point and has all the potential to stall the present rally.

NIFTY has given up over 200-points from the highest point to end below the 12960-13000 levels. Although the level of 13145 remains a top, this zone of 12960-13000 is also an extremely crucial resistance zone that will continue to post stiff hurdle for the markets over the coming days. We recommend continuing to approach the markets with utmost caution as the volatility is likely to increase over the coming days. So long as the Index stays below 13000 level, all up moves, if there are any, will stay vulnerable to sharp profit taking bouts.

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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