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Tuesday Trade Setup: NIFTY May See Continued Short Covering; Stay Vigilant At Higher Levels

A strong pullback in the markets continued for the second day in a row as the NIFTY opened positive, got stronger during the day, and ended with strong gains. The NIFTY saw a positive opening in line with overnight global cues and stable Asian markets. After opening positive, the index stayed in upward rising trajectory for the whole day while showing no signs of any corrective intent. While continuing to maintain stable gains during the day, the markets were not as volatile as expected. The NIFTY managed to maintain the levels near its high point and ended with a strong gain of 177.30 points (+1.60%).

The NIFTY has over 400-points in two sessions in form of short covering. The up move has been on the basis of short covering as it has come with decrease in Net OI in NIFTY futures. Nifty is now set to approach a crucial resistance point in form of 50-DMA which presently stands at 11302. The overnight pullbacks in US Dollar Index which is in the process of staging a technical rebound continues to remain a concern for the markets in general. Volatility came off again as INDIAVIX dipped another 5.33% to 19.5725, again at one of its lowest levels in recent times.

Markets may get little jittery once again on Tuesday. The NIFTY will find overhead resistance at 11260 and 11310. The supports will come in at 11165 an 11060.

The Relative Strength Index (RSI) on the daily chart is 48.01; it remains neutral and does not show any divergence against the price. The daily MACD is bearish and it trades above its signal line. A rising window occurred on the candles. This results out of a gap up and generally implies continuation of the trend. However, this will require confirmation on the next trading bar.

The pattern analysis shows that the NIFTY has bounced back from very near to the 200-DMA. This has made this level as one of the most immediate support. On the upper side, since the NIFTY had violated the 50-DMA, this level may pose resistance on the way up now for the time being on a closing basis.

Going ahead, we may see some more short covering happening but at the same time, also see the upsides staying capped at current levels. There are high probabilities that the NIFTY finds resistance at current and higher levels. So, in the event of any continued pullback, it is recommended to stay vigilant and protect profits at higher levels. A cautiously positive 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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