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  • Milan Vaishnav, CMT, MSTA

Thursday Trade Setup: Mild Incremental Gains Likely; Imp For NIFTY To Keep Its Head Above This Level

The modestly oversold markets found support near the 50-DMA levels and staged a strong rally mainly led by short-covering. The markets saw a soft start on the expected lines and slipped in the negative territory in the morning trade. However, the NIFTY recovered from the lows and remained in an upward rising trajectory for the rest of the session. The headline index ended near the high point of the day, posting substantial gains of 186.90 points (+1.68%).

Though the markets were close to being oversold on the short-term time frame, it has received a much stronger-than-expected pullback. The pullback has been once again fueled by strong short-covering, and in the process, the NIFTY has ended a notch above the 200-DMA, which presently stands at 11266. It would be crucial for the NIFTY to keep its head above this level to capitalize on the gains and avoid being pushed into consolidation again.

A stable start to Thursday is likely, and we may see some incremental gains; however, staying above 200-DMA would be crucial. Thursday is expected to see the levels of 11355 and 11400 are expected to act as resistance, while supports will come in much lower at 11260 and 11190.

The Relative Strength Index (RSI) on the daily chart is 53.44; it stays neutral and does not show any divergence against the price. The MACD remains bearish and trades below its signal line. A large white body emerged on the candles. The emergence of this large candle has occurred near the multiple support points around 11050; this has lent some credibility to this support area for the near term.

The pattern analysis on the daily charts shows that the NIFTY has a couple of support points near 11050 levels, and the pullback from this area has marked this level as near term support. On the upside, it would be crucial for the NIFTY to keep its head above the 200-DMA to avoid being pushed into some more consolidation.

Despite a sharp pullback, the NIFTY reels under weaker technical setup. It will be prudent not chasing this wild pull back and wait for some consolidation at higher levels. If the markets sustain this pullback above 200-DMA, it will be healthy for the markets as it would help form a near-term bottom for the markets. We recommend not chasing the up move and keep protecting profits at each higher level that markets offer going ahead from here.

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)