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  • Milan Vaishnav, CMT, MSTA

Wednesday Trade Setup: NIFTY Stares At A Breakout Again; Confirmation Will Be Crucial Going Ahead

Updated: Dec 18, 2019

It was a good day for the Indian markets as the benchmark index NIFTY surged to a new lifetime closing high and ended the day on a robust note. The markets saw a much better than expected opening again and traded with sustained gains for most of the day. After trading in a capped range while maintaining its gains, the NIFTY surged higher in the last hour of the trade. While testing its previous high levels, the index saw no signs of any retracement and closed near the high point of the day with net gains of 111.05 points (+0.92%).

NIFTY has attempted to penetrate the strong double top resistance point of 12103 on a closing basis. This has increased the possibility of a breakout once again. The markets will look for confirmation of this attempted breakout on Wednesday, and the behavior of the NIFTY against the price level of 12103 will be crucial to watch. If the NIFTY has to move higher while giving a breakout, it will have to sustain above 12103 on a closing basis. Any slip below this will push the markets into consolidation again.

Wednesday is expected to see a positive start of the day. In all likelihood, the NIFTY may inch higher while attempting a breakout if there are negative overnight trade setups to deal with. In the event of any up move, the markets will be in uncharted territory. The levels of 12210 and 12245 may act as resistance at higher levels, while supports will come in at 12100 and 12020.

The Relative Strength Index (RSI) on the daily chart is 62.99; it shows a bearish divergence again as the RSI has not marked a fresh 14-period high along with the NIFTY. The daily MACD continues to remain bearish and trades below its signal line. The PPO is negative. A white body emerged on the Candles, and apart from this, no other formation is seen on the charts.

The pattern analysis shows that the index has made yet another strong attempt to penetrate the double top resistance on the charts. However, it still shows some lack of strength that is required for a breakout to materialize sustainably. A lookout for confirmation will be necessary going ahead from here.

The current trade setup stays resilient, and it will be no surprise if the NIFTY attempts to break above the double top resistance. However, that being said, a confirmation will be required before any aggressive purchases are made as the lead indicators continue to show bearish divergence. The broader trade setup is attempting to turn bullish and we recommend approaching the markets on a positive note while continuing to protect profits at higher levels unless a reliable confirmation of the breakout is seen. A positive outlook is advised for the day

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