Gemstone Equity Research & Advisory Services

Tuesday Trade Setup: NIFTY Overstretched and Overheated; Caution Advised At Current Levels

The Indian equities, along with other Asian peers celebrated the US Elections outcome with a green wave as it ended on a strong note while continuing its unabated up move. The NIFTY opened with a gap up, showed marginal decline in the first half but pickup again the second half. The markets throughout displayed strong momentum with gains coming in all sectors of the markets. All sectors except Media which ended flat, posted decent gains. The markets were able to maintain gains while managing to end near the high point of the day. The index closed positing robust gains of 197.50 points (+1.61%).

Markets have created a gap once again on the upside which implies some incremental gains unless the global markets consolidate. The NIFTY has runup much ahead of the curve of the US markets as well and chase of momentum beyond current levels makes it highly unhealthy. The volatility also declined as the INDIAVIX came off by 1.88% to 20.1125. The chase of momentum at current levels without any signs of consolidation has now made the risk-reward ration very dangerous and unfavorably skewed even as we discount all the developments.

The opening of the markets on Tuesday will stay influenced with overnight trade setup. The index has resistance around 12530 and 12600.  The supports come in at 12300 and 12225 levels.

The Relative Strength Index (RSI) on the daily chart is 72.57; it has marked a new 14-period high. The indicator is neutral and does not show any divergence against the price and now trades in overbought zone. The MACD is bullish; it stays above the signal line. A Rising Star has occurred on the candles because of the gap. This results out of a highly bullish session that gaps above the previous one.

All in all, Tuesday’s trade will stay dominated with overnight trade setup. It is beyond doubt that the markets are overheated regardless of everything getting discounted in the price or not. Any fresh chase of up move would be now definitely unhealthy, and it would be imprudent to do so. If there is not consolidation despite such unabated moves, the markets are making themselves prone to equally sharp profit taking bouts. We recommend approaching markets with a high degree of caution over the coming days.

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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