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  • Milan Vaishnav, CMT, MSTA

Wednesday Trade Setup: Market's Gravity Defying Action Needs To Be Approached With Caution

Markets witnessed yet another gravity defying session as it enjoyed a strong opening only to get stronger as the day progressed. Tuesday’s session was a huge liquidity driven chase which made the front-line index NIFTY much overbought on the shorter time frame charts. All throughout the session, the gains were maintained, and the markets ended near the high point of the day. The NIFTY ended the day with net gains of 133.15 points or 1.19%.

As we approach Wednesday’s session, we need to now do that with great amount of caution. It is beyond doubt that the current rally is being driven by great gush of liquidity. This being said, continuing to blindly chase the up move can prove hazardous to any retail investor as the markets remain prone to sharp consolidation moves. Perhaps, after such moves, it makes great wise sense for any retail investor step back and wait for any fresh purchases. The present situation also makes a perfect case of vigilant profit protection at higher levels.

Wednesday is likely to see the levels of 11350 and 11380 acting as immediate resistance points. Supports come in at 11225 and 11170.

The Relative Strength Index (RSI) on the daily chart is 72.7350 and it has marked a fresh 14-period high which is bullish. RSI, however, does not show any divergence against the price. The daily MACD stays bullish while trading above its signal line.

On the candles, a rising window occurs. This usually implies continuation of uptrend in the next session. In the present case, however, it warrants great caution as the NIFTY trades overbought on the daily chart from all angles.

Importantly, the NIFTY continues to remain above the upper Bollinger band. This situation also warrants caution. There are no second doubts the present set up remain buoyant and the liquidity is fueling the markets. However, the wider-than-normal Bollinger band does not suggest conclusive about the future volatility of the index. Further, given the overbought nature of the NIFTY, there is high degree of probability that it pulls back inside the range.

We recommend approaching markets with great degree of caution. Fresh purchases may be avoided, and all up moves should be used to protect profits at higher levels. Exposures should be kept at modest levels and blind chase of momentum should be avoided as sharp profit taking bouts at higher levels cannot be ruled out.

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