Chase Momentum Carefully; Profits To Be Vigilantly Protected At Higher Levels
In a very strong start to the week, the markets surged with great strength and witnessed a secular up move while it attempted to confirm a breakout on the daily charts. In sharp contrast to what was expected, the NIFTY witnessed a strong start to the day and the markets remained in upward rising trajectory all throughout the session. As the day progressed, the strong market got even stronger and the NIFTY ended the day with gains of 132.65 points or 1.20%.
Though the markets have not moved completely out of the resistance zone seen on the charts, it has certainly created a strong base for itself. We expect a positive start to the trade on Tuesday and expect follow-up moves to occur. However, even after such a strong day, we cannot overlook the fact that NIFTY remains overstretched on the shorter time-frame charts.
In such markets, the traders do not have much option but to chase the momentum. In event of markets inching higher, the levels of 11200 and 11285 will act as resistance points. Supports come in at 11120 and 11070 levels.
The Relative Strength Index (RSI) 68.0290. It has marked a fresh 14-period high which is bullish, but it does not show any divergence against the price. The daily MACD stays bullish and trades above its signal line. A big white body emerged on candles. It has attempted to lend credibility to the attempted breakout as it has appeared after a brief consolidation.
The pattern analysis shows that NIFTY has made a strong attempt to break out of the multi-month resistance zone and has set the stage for a resumption of up move. However, the other piece of evidences presents on the charts show the index overstretched which theoretically keep the possibilities of consolidation at higher levels open.
The NIFTY has ended above its upper Bollinger band which potentially signals an upward breakout. However, with the bands neither being narrower nor wider than normal, the most likely scenario is for the current trading range to continue. The current width of the band does not suggest anything conclusive. This may even lead to the NIFTY witnessing a temporary pullback inside the band.
All in all, given the strength that we are witnessing, the traders are left with no options but to chase the momentum. However, this may be done on extremely selective basis. With each up move, the markets need to be approached with higher degree of caution. While continuing to remain light on exposures, all profits should be vigilantly protected at higher levels.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)