market outlook: Trade Setup: Nifty setup extremely risky, don’t chase momentum

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The previous session in the domestic equity market played out much on consolidation lines as the benchmark index oscillated within a defined range without making any headway, and ended the day with a nominal loss.

Nifty opened positive, but it soon slipped into the negative territory. The index did not take any directional cue and kept moving in and out of the positive territory. The last hour of the trade saw some sharp selling pressure which made the index test its intraday low. However, the Nifty managed to settle with a minor loss of 18.05 points or 0.14 per cent.

As the market opens on Tuesday, the Indian equities would not only adjust to overnight cues but also to global markets as well which are open on Monday. Volatility declined a bit with India VIX coming off by a modest 1.02 per cent to 19.8175. Nifty’s behavior against the level of 13,000 will be crucial to watch over the coming days.

Tuesday’s session is likely to see a somber start to the day. The levels of 13,000 and 13,090 will act as resistance points, while support will come in at 13,880 and 13,800 levels.

ET CONTRIBUTORS

The RSI stands at 67.46; it stands neutral and does not show any divergence against price. However, following the occurrence of bearish failure swings, it appears to be making lower tops which is not a good sign. The daily MACD is bullish and stays above the Signal Line. However, going by the sharply narrowing slope of the histogram, it is set to see a negative crossover going ahead. No major formations were observed on the candles.
Nifty came off in the second half of the session. However, in the process, it has added 5.10 per cent or over 5.80 lakh shares in Futures Open Interest. Although the change in Nifty levels on the closing basis is not much, however, the quantum of reduction of OI indicates that there may have been some last hour selling in the previous session.

Regardless of the global setup that we inherit on Tuesday morning and some incremental up moves that we may see, the domestic technical setup has now become extremely risky. Chasing momentum would just not be a good idea. We reiterate strongly to keep focus on traditionally defensive stocks and keep protecting profits vigilantly at current levels.


(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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