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    Trade setup: Shorts building up; Nifty setup now highly risky & unhealthy


    Wednesday’s session is likely to see a quiet start.

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    The 10,835 and 10,860 levels are likely to act as overhead resistance, while supports should come in at 10,710 and 10,625 levels.
    Tuesday was a day of consolidation for domestic equities, as Nifty oscillated in a very narrow and defined range to end the day with modest gains. The market opened positive, but soon pared those opening gains to trade flat. After heading nowhere, Nifty saw some selling pressure, which took it below the 10,700 mark briefly. Nifty recovered again, but only to trade in a sideways trajectory. In the end, while taking no directional cue, the headline index ended with a modest gain of 36 points, or 0.33 per cent.

    While showing initial signs of distribution at current levels and closing just below the key resistance zone, Nifty threw up mixed signals for the road ahead, as it also went on to add fresh shorts in the system. This was reflected in the futures prices, whose discount widened against the spot. Strike price 11,000 continued to hold maximum concentration of Calls open interest followed by strike price 10,800. This makes the situation a little tricky for the market.

    Wednesday’s session is likely to see a quiet start. The 10,835 and 10,860 levels are likely to act as overhead resistance, while supports should come in at 10,710 and 10,625 levels.

    The Relative Strength Index or RSI on the daily chart stood at 72; it has marked a fresh 14-period high, which is a bullish sign. However, the RSI is neutral and does not show any divergence against price. The daily MACD remains bullish, as it trades above the signal line. A Doji emerged on the candles. Such a formation occurring after a strong rally and when the market is overbought is not a comfortable sign. It has the potential to halt the rally in the near term and cause the market to show some corrective move.


    There is no doubt, as mentioned in the previous note, that a gush of liquidity is fueling the market. Under such technical setups, a few technical levels tend to get violated.

    However, this does not justify throwing caution to the wind. We recommend staying away from making fresh purchases unless Nifty moves past the 200-DMA and closes above that level with conviction.

    The market is, in general, at a place where some corrective moves are imminent. If they do not come, then such a technical setup is getting highly risky and unhealthy for the near term. While adopting high degree of caution, any move on the higher side should be used only to protect profit and any significant buying should be avoided 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
    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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    2 Comments on this Story

    ATUL GOEL26 days ago
    Very well written and explained, excellent
    Suvankar Roy26 days ago
    The Economic Times