Thursday Set-up: NIFTY Markets a Classical Double Top; Signals Potential Reversal Yet Again
For the fourth successive day, the Markets showed classical signs of imminent correction setting in. After opening on a positive note and trading with modest gains in the first half of the session, it looked set to have yet another gainful day. It was in the late afternoon trade that the markets saw sharp profit taking bout which caused the headline index NIFTY50 coming off over 120-points from the high point of the day. The index went on to end the day near the low point posting a net loss of 69.25 points or 0.59%.
It was for the fourth straight session that the Markets formed a potentially bearish formation on the candle and on the top of it marked a Classical Double Top on the daily charts as it came off from the 11761 against the previous high of 11760.
We expect this corrective action to continue in Thursday’s trade as well. A flat to mildly negative start is expected, and we expect the markets continuing to display a corrective intent as well. The session will react to the RBI Credit Policy review slated to come up tomorrow wherein a 25-bps rate cut is already discounted. Anything higher than 50-bps will be a positive surprise but the markets have very strongly put yet another intermediate high in the place and this level of 11760 will be extremely difficult for the markets to take out easily.
Thursday will see the levels of 11710 and 11760 acting as resistance points. The supports come in much lower at 11610 and 11500 zones.
The daily RSI is 68.7290; it remains neutral against the price, but it has just slipped below 70 from a topping formation which is bearish. The daily MACD stays bullish but it is seen narrowing its trajectory.
An Engulfing Bearish candle occurred on the charts. This is the fourth successive bearish candle which has occurred. Since this formation occurred after an up-move, it has shown yet another likely bearish reversal. Such formation can have potentially bearish implications going ahead.
Overall, markets are giving enough signals since last four sessions and with each passing day, it is showing signs of a formation of a potential top. Even the VIX is seen rising with the rise in markets which is unnatural. Usually VIX moves in opposite direction of the markets and its negatively correlated but the VIX moving higher along with the markets shows the level of discomfort and hyper-activity and lack of consensus at higher levels. We reiterate to continue reducing positions with each upside that the markets offer. Buying on dips should be avoid as the markets are seen changing its texture for the near term. A highly cautious view of the 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)