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  • Milan Vaishnav, CMT, MSTA

Trade Set-up For Tuesday: Markets May Extend Its Corrective Trail; Stock Specific Approach Advised

MACD shows a negative crossover; RSI sports a Bearish Divergence

Trading very much on expected lines, the NIFTY resumed its corrective trail after a day of breather and ended with a modest loss. The markets saw a better-than-expected opening and it traded on a positive note in the initial trade. However, as cautioned in our previous daily note, the initial up-move did prove to be deceptive as the bout of profit taking took over the markets. The NIFTY pared over 130 points from the high of the day and despite some recovery in the end, the index ended the day losing 61.45 points (-0.53%).

Monday’s session has reinforced the level of 10760 as a formidable resistance point in the immediate short term. Tuesday is likely to see a soft start to the day and there are strong possibilities of the markets extending its corrective trail. Any upside will remain limited and the Monday’s high point of 11710 is likely to now act as lower top and immediate short-term resistance for the markets.

Tuesday is likely to see the levels of 11655 and 11710 posing stiff resistance to upsides, if there are any. Supports come in at 11550 and 11470 levels.

The Relative Strength Index (RSI) on the daily chart is 63.0704; RSI has not only marked a fresh 14-period low which is bearish, but it has shown a bearish divergence against the price. A bearish divergence occurs when the RSI marks a fresh 14-period low while the price does not. The daily MACD has turned bearish following a negative crossover and it now trades below its signal line.

On the candles, an Engulfing Bearish candle has emerged. This not only lends credibility of the level of 11760 as a formidable resistance for the immediate short term, but also potentially establishes the level of 10710 as immediate short-term resistance point for the markets.

The present structure of the daily charts makes it clear that there is a very limited possibility of the markets posting any run-away up move. We reiterate continuing to adopt a highly cautious view on the markets. While continuing to refrain making aggressive purchases, exposures should be kept very limited. A stock specific approach 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)