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Gemstone Equity Research & Advisory Services

Tuesday Trade Setup: NIFTY Still Below This Crucial Zone; Tread Cautiously

The markets continued to rise on a weaker breadth and ended one more day with modest gains. The NIFTY saw a modest gap up opening but pared all its opening gains to slip in the negative by late morning trade. However, after that, the NIFTY transformed itself in a rising trajectory and crawled in the positive zone again. It continued to post incremental gains throughout the day but stayed well below key resistance levels. At the end, the NIFTY finally ended with a modest gain of 67.40 points (+0.52%).

Despite the gains over the past two days, the markets are showing distinct signs of fatigue and distribution happening at higher levels. The NIFTY remains below 12963-13000 zone and unless this zone is taken out, it will stay vulnerable to profit taking bouts at higher levels. Much on the anticipated lines, the volatility to spiked as the INDIAVIX surged 6.09% to 20.8125. So long as NIFTY stays below 13000-mark, new positions in high beta stocks should be strictly avoided as the price action of the Index against this zone will be crucial to watch over the coming days.

Tuesday is expected to see the levels f 12965 and 13000 acting as resistance levels. The supports come in lower at 12860 and 12800 levels.

The Relative Strength Index (RSI) on the daily chart is 72; it is  neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line. However, the narrowing slope of the Histrogram clearly suggests deceleration of momentum of the up move at current levels.

A hanging man occurred on the candles. Although this candle has a small upper shadow, it is such second consecutive bearish candle just below the resistance zone of 12960-13000 level. The current formation still has a potential to stall the up move if it gets a confirmation on the next trading day.

The analysis for the next trading session remains quite on similar lines. We reiterate avoiding a chase of the momentum in high beta stock as the risk-reward ratio remains adversely skewed in the current technical setup. All purchases should be kept limited to defensives and at modest levels. We may also see some depreciative pressure on the Rupee and may also see some momentum in IT stocks along with other traditionally defensive sectors. A continued cautious 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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