Thursday Trade Set-up: NIFTY Stares At Imminent Consolidation; Broader Markets May Show Pain
Markets witnessed a reluctant up-move on Wednesday as it ended yet another day on a positive note. After a flat start and an early morning range bound trade, the NIFTY remained flat for the major part of the session. It was the second half of the session that saw the markets reluctantly adding gains. The headline index finally ended the session with net a net gain of 40.50 points or 0.36%.
Despite the continued up-move, the markets have thrown up some cautionary signs for the short-term traders. Wednesday’s up-move came very reluctantly as the market breadth remained negative in favor of declines. The broader market under-performed the front-line markets and evident through the fractured market breadth.
Thursday might again witness a stable start but along with the negative market breadth the NIFTY also remains in the overbought territory. The levels of 11375 and 11425 are likely to act as immediate resistance while supports will come in at 11275 and 11150.
The RSI on the daily chart is 73.9892; it has made a fresh 14-period high which is bullish. The RSI does not show any divergence against the price and it trades in oversold territory. The daily MACD continues to trade above its signal line. A Candle with a small real body with slightly longer shadow has emerged. Though this is not a classical hanging-man kind of pattern, but it certainly shows waning of strength at present levels.
The NIFTY has continued to end outside the upper Bollinger band. This implies strong momentum in place but in the present situation, along with this reading, it is also important to note that the NIFTY is in overbought territory and is witnessing diminishing strength with weakened market breadth. There are very high chances that the NIFTY gets pulled back inside the band and undergoes some corrective moves.
Overall, this is certainly that time when the retail trader must either step aside and let the markets settle and consolidate or approach the markets with extremely tight stop-losses while chasing the momentum. Despite being relentlessly chased by liquidity, the markets are evidently showing signs of tiredness and some temporary loss of momentum. We strongly suggest staying away from making fresh purchases. Purchases if any, should be done on an extremely selective note and in very modest quantities. Profits should be protected vigilantly as the markets now remain prone to some imminent consolidation.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)