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  • Milan Vaishnav, CMT, MSTA

Friday Set-up: Some Up-moves Are Best Used To Take Money Off The Table; Stick To Defensive Stocks

The expiry of the current derivative series and the rollovers fueled yet another rally in the equities as the headline index NIFTY50 closed with decent gains. The markets witnessed a positive opening once again though it traded with capped gains in the first half of the trade. It was the second half that saw the markets getting stronger. The index went past slightly beyond its immediate previous high of 11572 and ended the day with net gains of 124.95 points or 1.09%.

The markets have created a small double top formation and the levels of 11570 will be important to watch as we approach Friday’s trade. We might see some more strength if the NIFTY sustains above 11570. However, many important technical indicators still point towards some resistance near the current levels.

Friday will see the levels of 11600 and 11630 acting as immediate resistance points. Supports come in much lower at 11510 and 11420.

The Relative Strength Index (RSI) on the daily chart is 70.0294. This indicator shows a Bearish Divergence as the RSI did not report a 14-period high while the NIFTY did so. The daily MACD too remains bullish but it is seen narrowing its trajectory. No important formations were observed on candles.

It is beyond doubt that the liquidity is witnessing an unabated flow and due this gush of liquidity, the markets are relentlessly moving higher. However, while accepting this phenomenon, sometimes traders pay a price if such up moves are blindly chased. This is the time which warrants reducing positions with each up move. Though momentum should be chased most of the time, but some up-moves, especially like ones happening currently should be better used to take money off the table.

All and all, we strongly recommend keeping exposures only to select defensive stocks and keep reducing exposures with each higher level. Unabated up-moves, even if fueled by strong liquidity, tend to get unhealthier at times. Along with keeping exposures at modest levels, a highly cautious view 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)