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  • Milan Vaishnav, CMT, MSTA

Tuesday Trade Setup: Caution May Weigh In the Late Trade; Price Action Against This Level Crucial

The Indian equity markets continued to trade on expected lines. As anticipated, the start of the week remained defensive and somber. After opening on a modestly negative note, the NIFTY slipped rapidly in the first half of the trading day to test its 100-DMA. The markets recovered from the area near the 100-DMA and at one point of time recouped all its losses. However, the last hour of the trade again saw some paring of the recovered points, and the index ended the day with a modest decline of 37.95 points (-0.33%).

The NIFTY has held its 100-Day MA level as a support on a closing basis. The 100-Day MA presently stands at 11408, and this level will remain throughout the coming week as critical support. The options data also show the 11400 strikes having maximum Put OI as well. The price action against the level of 11400 will remain critically important. In a broader context, we will see NIFTY consolidating in a wide range with limited upsides.

Tuesday is likely to see the levels of 11530 and 11585 acting as resistance points. Supports come in at 11450 and 11380.

The Relative Strength Index (RSI) on the daily chart is 59.24; it stays neutral and does not show any divergence against the price. The PPO remains positive; daily MACD is bullish and trades above its signal line.

On a candle, a long lower shadow appeared. This is typically a sign of exhaustion and a potential stalling of the trend if it appears after some up move which is the case with NIFTY. This potentially signals the stalling of the current move. However, a confirmation will be required on the next trading day.

The pattern analysis on the daily charts shows that the NIFTY stalled its up move near the 11680 levels and has been consolidating in a broad range. The gap that was created over a couple of days has almost got filled. The NIFTY has defended the level of 100-DMA so far on a closing basis.

The NIFTY’s 100-DMA at 11408 and the highest Put OI concentration at 11400 make this level very crucial over the coming days. Unless a tactical shift occurs, this is likely to keep the NIFTY under consolidation in a broad range. We recommend approaching the markets with caution as the NIFTY October futures still trades with a steep premium of 68 points. Some amount of caution towards the close cannot be ruled out as Wednesday is a trading holiday on account of Gandhi Jayanti.

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