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  • Milan Vaishnav, CMT, MSTA

With Successive Warning Signs On Charts, NIFTY Remain Vulnerable At Higher Levels

The equity markets displayed strong sense of discomfort at higher levels and showed long overdue corrective intent as the NIFTY came off significantly from the high point of the day to end the day with modest gains. Markets enjoyed a strong start and as the day progressed, it gathered strength and went very near to its all-time high levels. When it seemed to be like yet another gravity-defying day, markets witnessed a strong profit taking bout. The NIFTY came off over 90 points from the high point of the day and finally settled with modest gain of 45.25 points or 0.36%. The VIX too, spiked 4.77%.

As we approach Tuesday’s trade, we expect this corrective intent to persist. Though a stable start can fairly be expected, the NIFTY now remains predominantly vulnerable to profit taking from higher levels if it attempts any up-move. Volatility too, is likely to creep and it is likely to remain more than usual over coming days. Monday was the second day in a row that the index displayed its vulnerability at higher levels.

Tuesday will see the levels of 11700 and 11740 acting as immediate resistance area. Supports come in lower at 11610 and 11500. The range for the day is likely to be wider than usual.

The Relative Strength Index (RSI) on the daily chart is 73.1765; it remains in overbought zone and continues to show bearish divergence against the price. The daily MACD stays bullish and trades above its signal line.

A Long Upper Shadow emerged on candle. This formation is particularly bearish and can have bearish implications going ahead. NIFTY has almost marked a temporary top for itself at 11738 as this candle has occurred following a Doji Star a day before which has bearish implications of its own since it has occurred after an up move.

We reiterate staying way from chasing the momentum on the upside. If the markets witness any up-moves, they are best avoided and should be utilized to protect profits and take money off the table. There are ample warning signs that are being displayed on charts and all collectively point towards likely corrective move in the immediate short term. If the NIFTY continues to move higher, such up-move will be unhealthy even if it is supported by liquidity. While continuing to remain modest on exposures, a highly cautious view 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)