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Tuesday Trade Setup: NIFTY's Behavior Against This Level Important As Up Moves May Stay Deceptive

In a yet another volatile day of trade, the NIFTY swung on either side before it ended the day with mild gains, mainly drawn by the financial stocks. The markets saw a stable and modestly positive s tart to the trade, but soon saw themselves slipping in the negative territory in the first hour of the session while it marked the day’s low point. Gradually, for the rest of the session, the NIFTY recovered on a steady note, though the bulk of the session saw the markets largely in a defined range. The headline index went on to enter the positive territory and see the high point for the day being marked in the last hour of the session. Much of the gains were pared by the end as the NIFTY finally settled with a modest gain of 26.75 points (+0.23%).

Global markets would stay volatile owing to US Elections throughout this week. That being said, Indian markets would not stay insulated to such elections induced volatility. However, if we take a standalone view at the domestic technical, Monday was the second day when the NIFTY breached the broad trading range and recovered after taking support at the 50-DMA which presently stands at 11554. This makes the 50-DMA very crucial to watch over the coming days. The volatility continued to edge higher as the INDIAVIX rose by 1.85% to 25.2100.

Tuesday is likely to see the levels of 11710 and 11735 acting as resistance points. The supports come in at 11580 and 11515 levels.

The RSI on the daily chart is 49.21; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line. A spinning top occurred. This signifies a session with a little price difference between the open and the close price and denotes indecisiveness of the market participants. This can act in a bearish way if not resolved on the next trading day.

The pattern analysis reveals that the NIFTY has twice violated the lower edge of the large trading zone that has been created following a wide-ranging session a two weeks ago. The zone of 11600-11650 stays crucial to watch and any serious violation is likely to invite incremental weakness.

The analysis for Tuesday remains more or less on similar lines as the broader technical largely remains unchanged. The previous two sessions have resulted in the formation of almost parallel bars. Given the present technical setup, NIFTY’s behavior vis-à-vis the 50-DMA will be crucial to watch. This level currently stands at 11554 and any slip below this will invite incremental weakness. On the other hand, up sides may stay deceptive and the markets may continue remaining prone to profit taking at higher levels.

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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