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Tuesday Trade Setup: Stable Start To NIFTY Likely; Protecting Profits Getting More Important Than Ever

The Indian stock market continued with its up move amid weaker market breadth and ended yet another day with gains. The NIFTY witnessed a quiet start to the day and the morning session saw the Index moving in a capped range. Until half of the session in the afternoon, the NIFTY did not make any major headway and remained in a defined range oscillating in a capped range. The second half of the session saw the Index moving higher. The NIFTY come off a bit from the high point but ended the day with a modest gain of 81.40 points (+0.52%).

Amid small intraday moves, the NIFTY has continued posting and closing on fresh lifetime highs. The last four session has seen the NIFTY bouncing off nearly 300-odd points; however, the intraday trading ranges have been much narrow and capped. The ever-declining volatility continued to decline on Monday as well; INDIAVIX came off by another 2.34% to 15.5675 and this remains the lowest levels of past 15 months. The NIFTY has now raised its supports higher to 15450; any corrective move, or consolidation will see the zone of 15450-15500 acting as supports. The Index is in the uncharted territory; any such further moves is contributing to making the risk-reward ratio highly skewed making protection of profits more important than ever.

Tuesday may see NIFTY opening on a stable note; the levels of 15800 and 15835 will act as resistance; supports come in lower at 15705 and 15610 levels. Any move, if corrective in nature, will make the trading range wider than usual.

The Relative Strength Index (RSI) on the daily chart is 72.12; it has entered again in the overbought zone. The RSI also shows a bearish divergence against the price. The NIFTY has made a new 14-period high, but the RSI has not, and this has resulted in a bearish divergence. The daily MACD is bullish and remains above the signal line.

All in all, with such up moves, despite the breakout being in force, it is now imperative for the traders to stay highly selective while making fresh entries in the high-beta and economy-facing stocks. It would be prudent to show more preference towards defensive stocks. While there are no signs of change of trend as of now, following momentum is the only feasible thing. However, this should be done while keeping strict trailing stop-losses in place as protection of existing profits is getting more important than ever. A continued vigilant and cautious approach is advised for the day.

This was first published by The Economic Times.

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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