Tuesday Trade Setup: Despite Buoyant Mood, NIFTY May Take Some Breather; Chase Up-moves Cautiously
The carnival continued in the Indian equity markets as the NIFTY saw yet another gap up opening and ended the day with a robust gain. The markets opened in a celebratory mood and continued with its up move. It saw a follow-through buying went on to scale new heights while it factored in the effect of the fiscal stimulus announced by the Government on Friday. After tapering down from its highs, the NIFTY ended the day with net gains of 326 points (+2.89%).
NIFTY tested the intraday high of 10694 around the afternoon, and before it closed, it pared over 95 points from the high point of the day. Also, the index did not make any incremental intraday high for the next entire half part of the session. The advance-decline remained positive, but it was not as much strong as the previous session. These are mild signs that the Markets may take some breather and consolidate. There are higher probabilities that the 11700 may prove to be a resistance point for the immediate short-term.
We expect a quiet start to the trade. In the event of any continued up-move, the levels of 11700 and 11745 will act as resistance. Supports come in much lower at 11470 and 11410.
The RSI on the daily chart is 65.63; it does not show any divergence against the price. The daily MACD stays above its signal line while the PPO remains positive. A rising window occurred on candles. Usually, such formation implies a continuation of the up-move, but in the present context, this will require confirmation on the following bar.
The pattern analysis shows that the NIFTY retraced from one of its pattern resistance point of 10700. The price action against the level will be necessary to watch. On the downside, it has 100-DMA to look at in the event of any consolidation at current levels.
There are no doubts that the markets are in bullish mode. However, given the over 850-point vertical rise in NIFTY over the past two sessions, chasing the longs may not be a good idea at current levels. For the current up-move to sustain and resume higher, it will be necessary that the markets consolidate. This would be healthy in the long term if the NIFTY has to build a base from this and move even higher. The unabated rise in such a vertical fashion is now making the risk-reward ratio extremely unfavorable for new long positions.
The strike price of 11600 has continued to show the highest Call OI, and this would mean that there are higher possibilities that the NIFTY consolidates around this level. We recommend chasing up-moves very cautiously and protect profits at higher levels. It is recommended to curtail exposures at higher levels and approach the markets with caution going ahead as volatility is likely to remain ingrained over the coming days.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)