Tuesday Trade Set-Up: Incremental Moves May Be Used To Protect Profits At Higher Levels
In a move which cannot be termed as healthy, the markets continued with its up move and ended the day with modest gains while the VIX too rose another 1.86% to test its multi-year highs. The index saw a flat opening on expected lines, but it kept reluctantly adding to gains during the day. There was an intraday sharp dip that was bought into on back of short covering in the afternoon. The headline index finally ended the day with a gain of 46.90 points or 0.40%.
With the Volatility Index – VIX rising sharply along with the markets do not paint a good picture as such. Usually, whenever volatility subsides after the kind of rise that it is presently seeing, it all probabilities, it tends to adversely impact the markets especially when they are trading at higher levels.
Tuesday is once again likely to see a muted start to the trade. Markets may keep marking incremental higher levels, but runaway rise will continue to elude until the level of 11760 is taken out comprehensively. However, the present structure of the charts to dot favor chasing such incremental up-moves as they typically tend to get unhealthy.
Tuesday will see the levels of 11730 and 11765. Supports come in lower at 11610 and 11530.
The Relative Strength Index (RSI) on the daily chart is 64.3001. If it is visually inspected for longer than 14-period, it continues to show bearish divergence against the price. The daily MACD stays bearish and trades below it signal line. No important formations were seen on Candles.
The pattern analysis on the daily chart shows that the NIFTY marked a double top at 11761. It halted its up move by forming a large engulfing bearish candle. After that, though it has not shown any major corrective moves, it is seen consolidating in a range with negative bias.
All and all, over past many occasions, the NIFTY has pulled back on short covering and has not shown any major corrective moves. However, this is still not a time when one would make purchases on dips. Instead, all such up-moves that markets are offering should be effectively used to protect profits and take some money off the table. The NIFTY Futures too saw the premiums coming down as well. We recommend staying away from creating aggressive positions and maintain a cautious outlook on the markets.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)