Trade Set-up For Wednesday: Keeping Exposures Modest and Limited To Defensive Stocks Advised
In a very sharp and unexpected move, the markets witnessed a large spate of short covering and ended the day with good gains. After witnessing a better-than-expected opening, the NIFTY traded with limited gains in the first half of the trade. The second half saw the markets getting stronger with the index seeing a strong surge, though mainly led by short-covering. The markets maintained its gains and benchmark index NIFTY50 ended the day up by 129 points or 1.14%.
Tomorrow, we enter the penultimate day of the expiry of the current derivative series. We also expect the trade to remain dominated with rollover centric activities. A stable move is expected on Wednesday, but the range is likely to remain relatively narrower than the previous trading session. We continue to refrain from piling up longs until the previous high is taken out by the markets.
Wednesday is likely to see the levels of 11500 and 11575 acting as resistance points while levels of 11420 and 11350 are expected to act as supports.
The Relative Strength Index (RSI) on the daily chart is 68.4304 and it remains neutral showing no divergence against the price. The daily MACD continues to trade bullish and remains above its signal line. No significant formations were observed on Candles.
The pattern analysis on the daily chart continues to show the exhaustion of up move by NIFTY following a breakout from the previous formation. The exhaustion is evident from the gap that it created after the NIFTY tested its immediate previous high of 11572. Though this gap was filled up on the next trading day, this level of 11572 is likely to pose resistance to the markets.
Overall, given the increased bands of the markets over past couple of days which resulted due to unabated up moves, there are high possibilities that the NIFTY remains within its current range. It is also unlikely that the markets take out the immediate previous high level of 11572 too soon. Any fresh and sustainable up move shall emerge only once this level is taken out. Until this happens, there are greater chances of NIFTY once again consolidate with limited upsides. We recommend staying away from chasing any up moves, if at all they occur, and keep exposures modest and limited to defensive stocks.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)