Trade setup: Continue to chase the Nifty up moves cautiously

Following an extraordinarily strong short-covering move, the Indian markets had a stronger-than-expected session and ended Friday on a buoyant note. The markets saw a positive start to the day; it remained positive throughout the day while it only grew stronger as the day progressed. Volatility remained near absent as the Index steadily maintained its gains for the entire day and showed no intent to correct at any point in time. Following a very steady session, the headline index ended on a robust note with a gain of 269.25 points (+1.81%).

Technically speaking, Nifty has attempted to resume its breakout move following a throwback. We are entering the expiry week. The remaining days until monthly derivative expiry are expected to be largely dominated by rollover centric moves. The up move on Friday was on the back of strong short covering; it would be important to see if this is replaced with fresh buying as well. If not, then some consolidation at higher levels cannot be ruled out. The Nifty PCR across all expiries stands at a healthy 1.38.

Volatility continued to decline. The fear gauge, India VIX, came off by 2.91% to 19.0800. It remains at one of its lowest levels in recent times. Nifty is likely to see a soft start to the day. The levels of 15,210 and 15,290 will act as resistance points. Support will come in at 15,090 and 15,000.

The Relative Strength Index (RSI) on the daily chart is 60.35; it remains neutral and does not show any divergence against the price. The daily MACD is bullish and remains above the signal line. A large white candle has emerged. Its emergence near the support at 15,000 has added credibility to this support point for the immediate near term.

The pattern analysis shows that Nifty has once again attempted to resume its up move. After attempting a breakout two days back, it had suffered a classical throwback which took the Index to its support levels. After bouncing off from the support point, the index is trying to resume its up move again.

All and all, despite the buoyant setup, it is necessary to consider that the previous up move has been on the back of heavy short covering. Secondly, as we enter the expiry week of the current derivative series, it is important to note that the VIX has been at very low levels since quite a long time. Long periods of low volatility also reflect complacency of market participants. This may lead to an increase in volatility going ahead and one would need to guard against this as well.

While keeping our analysis on similar lines, we recommend continuing to chase the up moves very cautiously while guarding profits at higher levels.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)