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Tuesday Trade Setup: NIFTY Lacks Directional Conviction; Need To Close Above This Level To Move Higher

Friday’s session got a surprise from the RBI Governor as the Central Bank announced a 40 cut in the Repo rate in the morning. The initial trade remained range bound as the markets awaited the RBI press conference, but the rate cut did not enthuse the markets. Immediately following a sharp spike on the upside, the NIFTY began it slide and, in the process, slipped under 9000-levels. The rest of the trading session saw some recovery from the lower levels, however, the trading range remained capped and limited in the extent. At the end, the headline index ended the day with a net loss of 67 points (-0.74%).
 

The earlier session has resulted in formation of a lower top and a lower bottom on the daily charts. The volatility also declined modestly as the India Volatility Index, INDIAVIX, declined by 1.84% to 32.37775. The Index has continued to have a close below the 50-DMA, which presently stands at 9067. Therefore, the levels of 50-DMA continue to remain an important level to observe on a closing basis as it has acted as a resistance point over the past couple of days.

 
Tuesday will see the NIFTY opening after a gap as Monday was a trading holiday. The levels of 9095 and 9130 will act as important resistance points. The supports will come in at 9000 and 8935.
 
The Relative Strength Index (RSI) on the daily chart is 46.54; it remains neutral as it shows no divergence against the price. The daily MACD is bearish and it trades below its signal line. The PPO stays positive. The candles saw a formation of a Spinning Top again as it showed lack of directional bias and consensus on either side. Spinning tops are formed out of a session with small real bodies, with little difference between the open and the close price.
 
The pattern analysis shows that after falling out of a rising wedge, the NIFTY is drifting in a small falling channel. The Index also continues to resist to the 50-DMA which is acting as a resistance point on a closing basis.
 
All in all, the NIFTY is showing lack of consensus and conviction on any directional move regardless of the direction. This makes the markets more vulnerable on the higher side. Even if the NIFTY sees some upside momentum, it is likely to face stiff resistance at higher levels and may get prone to some profit taking. For a upside momentum to sustain on the higher side for some time, NIFTY will have to move past its 50-DMA and close above that point. A continuation of a cautious approach is recommended 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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