Gemstone Equity Research & Advisory Services

Tuesday Trade Setup: NIFTY Weak Against Broader Markets; Continue Staying Defensive

In a wide-ranging and volatile session, the NIFTY hung precariously near its crucial levels after ended the day on a modestly negative note. The markets saw a buoyant start on the expected lines and stayed strong until the first half of the trading session. As mentioned in the previous technical note, the NIFTY’s staying above 11430 was crucial. However, at the high point, the NIFTY faced a severe corrective move, and this saw the headline index coming off nearly 180-points from the high of the day. After a minor pullback from the lows, the NIFTY ended with a net loss of 24.40 points (-0.21%).

NIFTY is placed at a point where it is just not risk-rewarding to take any aggressive directional view. The NIFTY has so far kept its head above the 11430. Tuesday’s opening and the trajectory that the Index forms post opening would be extremely crucial. The RS Line of NIFTY against the broader NIFTY500 Index has plunged to a new low; this shows that the front-line Index will continue starkly underperform the broader markets. The volatility increased a bit with the INDIAVIX rising by 2.31% to 21.1900.

Tuesday might see a jittery start to the day. The levels of 11490 an 11550 will act as resistance points. The supports will come in at 11400 and 11310.

The Relative Strength Index (RSI) on the daily chart is 55.13; it is neutral and does not show any divergence against the price. The daily MACD is bearish as it trades below the signal line. A bearish engulfing candle has occurred. This has reinforced the credibility of the overhead resistance once again.

The pattern analysis suggests the NIFTY has slightly slipped below its short-term 20-DMA. Any slip below 11430 would also mean a failed attempt to move past this double top resistance point.

Overall, the Markets are likely to stay jittery at all levels unless the zone of 11430-11500 is taken out convincingly. Until this happens, the markets, in general, will continue to find resistance at higher levels. As mentioned in the previous note, the action will continue to stay highly stock and sector specific in nature. We reiterate avoiding heavy index positions and continue guarding profits at each level on either side. The risk-reward would be more favorable if highly select and defensive stocks are preferred over the high beta stocks. A cautious approach is advised or 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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