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  • Milan Vaishnav, CMT, MSTA

Wednesday Trade Set-up: For Third Successive Day NIFTY Looks At Likely Potential Reversal

It was for the third day in a row that NIFTY has not only visibly lost momentum, but it has also displayed signs of on-going profit taking at higher levels. On Tuesday, the Markets traded relatively on lower volumes and remained in a capped range throughout the day. After enjoying a good start, the NIFTY came off from the highs on account of sharp profit taking. After remaining in a range and failing to take any directional view, the NIFTY finally ended the day gaining 44.05 points or 0.38%.

After respectable up-moves, the NIFTY formed a Doji Star on Friday, March 29, followed by a long lower shadow (almost a shooting star) on the next day and then a Doji star on Tuesday. Such potentially bearish formations on Candles, and that too on successive days are not seen often. Such formations are very clear indications of the exhaustion in the present up-move and they are visible signs of profit taking at higher levels.

We might continue to see markets consolidating with a negative bias on Wednesday. Though the markets are ended just a notch below its record closing high, the momentum is very evidently lost and the high of 11760 is expected to act as a very strong resistance to any future up-move.

Wednesday will see the levels of 11760 and 11795 will act as very stiff resistance points. Supports remain much lower at 11650 and 11550 levels.

The daily RSI is 74.5089; it remains in over bought territory and continues to show bearish divergence. On the Candles, a Doji Star has occurred. This formation is even more bearish as it has followed similar reversal formations on two previous days. These collective formations have all the potential of marking a temporary top for the markets.

All in all, despite liquidity chasing the markets, the markets are clearly faltering on momentum front. There are signs of profit taking at higher levels. If we look at the present structure of the charts, such potential reversal patterns on candles followed by an overbought lead indicator which persistently shows bearish divergence, is giving ample advance warnings of an impending imminent corrective move. Any up-moves that now occur without even a minor correction will get extremely unhealthy. We strongly recommend to now completely avoid buying at current levels and continue to utilize up-moves, if they still occur, to reduce positions and take profits off the table.

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