Gemstone Equity Research & Advisory Services

Tuesday Trade Setup: Breakout To Be In Force So Long As NIFTY Above This Point; VIX Stays At Its Lowest Level Of Recent Months

The Indian markets had a strong session as it stepped into the new week. The NIFTY ended the day with gains and went on to surge higher on a weak market breadth. The markets saw a flat opening and it soon slipped in the negative territory in the early morning trade. However, the index soon recovered to move back in the positive zone. It remained in a gradually rising trajectory and maintained its gains throughout the day. The volatility continued to decline as well. The headline index made and closed at a new lifetime high with gains of 147.15 points (+0.95%).

If we look at the chart setup in isolation, the setup looks good and buoyant. The markets have attempted to take out a double top resistance of 15431 and has ended to a new high. This means that so long as NIFTY is above 15431, the breakout will remain in place. However, we cannot also ignore the fact that the market breadth has remained weak. Nearly 65 % of the gains over the two days have come from Reliance and ICICIBank and this keeps the participation weak. Another more concerning factor is the INDIAVIX which declined by another 2.97% to 16.8850. It remains at one of its lowest levels of recent past.

Markets may see a stable opening for the day. Tuesday is likely to see the levels of 15620 and 15675 acting as resistance points. The supports come in at 15500 and 15410 levels.

The Relative Strength Index (RSI) on the daily chart is 69.23; it has made a new 14-period high which is bullish. RSI, however, remains neutral and does not show any divergence against the price. The daily MACD Is bullish and stays above the signal line.

The pattern analysis shows the NIFTY has attempted a breakout from the double top resistance point of 15431 which also was the previous lifetime high point for the markets. This breakout will remain in force so long as the NIFTY is above this point.

We reiterate that despite the breakout attempt, this is the time when we will see the relative strength of defensive sectors like FMCG, Consumption, Pharma and IT is improving once again. We will find these pockets performing equally or better than high beta economy facing stocks. We recommend continuing to chase the momentum cautiously and keep new purchase highly selective and keep overall leveraged exposures curtailed and limited.

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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