Monday Set-up: Keep Exposures Modest; Vigilantly Protect Profits At Higher Levels
The markets stacked some more gains on Friday as it went on to end the day posting modest gains. Though the most part of the session remained strong without much volatility, the last hour of the trade saw both NIFTY and BankNIFTY pared some gains from their respective highs. The NIFTY pared over 60-points from the high point of the day while settling the day with net gains of 83.60 points or 0.74%.
Despite the momentum remaining strong over entire previous week, the paring of gains by NIFTY in the last hour of the trade on Friday may remain technically important. There are possibilities that the index has shown some signs of exhaustion and may take some breather at current levels. In this case, the Friday’s high point of 11487 is important from the very short-term perspective.
In the present set-up, another factor that force us to take an extremely cautionary view is that the markets remain steeply overbought at current levels. All these things, cumulatively, give enough reasons for the markets to slip into some consolidation. Monday is likely to see the levels of 11480 and 11535 acting as immediate resistance points while supports come in lower at 11350 and 11275 area.
The daily RSI is 76.6093; RSI has marked a fresh 14-period high which is bullish, but it does not show any divergence against the price. The daily MACD continues to trade above its signal line. No significant formations were observed on candles.
Another important point that support caution at current levels is provided by pattern analysis of the daily chart. The NIFTY broke out from the current pattern. The present pattern had a width of around 430 points and if we apply the measuring implications of the pattern, then the index has achieved its price target.
As we sum up all the observations as detailed above, we continue to strongly reiterate to avoid excessive purchases. Even if some more upsides are seen, the markets remain prone to imminent consolidation from current levels. If unabated up-moves continue, it can get potentially unhealthy and can witness equally sharp and volatile profit taking moves from higher levels. We suggest keeping exposures very modest and use all up-moves to vigilantly protect profits. A cautious outlook 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)