MARKET TREND FOR TUESDAY, FEBRUARY 07, 2017
The benchmark NIFTY50 had a better than expected session as
it continued to over-stretch itself while being in overbought territory as it
ended yet another day with gains ending 60.10 points or 0.69% higher. At this juncture, we very explicitly raise a
word of caution. We do not dispute the underlying buoyancy in the Markets but
in the same breath, the way the NIFTY is overbought and the manner in which the
lead indicators are overstretched, some corrective activity from higher levels
is very much long overdue. While raising the cautious undertone, we explicitly
point out not to ecstatically chase the rally as this is now getting bit
unhealthy. Some corrective action, in form of some consolidation would be in
fact healthy for the Markets to help it move higher than current levels.
The levels of 8830 and 8865 will pose resistance to the
Markets and the supports will exist much lower at 8735 and 8660 levels.
The RSI—Relative Strength Index on the Daily Chart is 75.1939
and it has posted a fresh 14-period high which is bullish. However, we cannot
ignore the fact that it is trading highly overbought. The Daily MACD continues
to trade above its signal line. On Candles, a rising window (gap) has
occurred. Though it is a bullish undertone, the overbought nature of the
Markets cannot be ignored and we have to approach this formation with great
amount of caution.
The NIFTY February futures have added over 3.68 lakh shares
or 1.71% in Open Interest which implies continuing buoyancy in the Markets.
While coming to pattern analysis, the way the buoyant
undertone is evident, we cannot discount the fact that the NIFTY is trading
highly overbought. The lead indicators are evidently overstretched and
therefore it is clear that such ecstatic chase of the up move can be turn
dangerous as the corrective activities too tend to be equally sharp. While we
accept and acknowledge the fact that the overall trend remains unanimously on
the upside, some short term correction is long overdue and it would be required
to make the Markets healthy. The Bollinger Bands are nearly 46% wider than
normal indicating high prevailing volatility. It also increases the chances of
the NIFTY returning in a consolidation range.
Overall, we now strongly advise to approach the Markets with
highly levels of caution. We strongly recommend refraining from creating any
fresh long positions and protect profits wherever applicable. The unabated rise
while remaining overbought can become unhealthy and can induce short term but
sharp corrective actions. Remaining light on positions or reducing positions
with each higher levels and adopting cautious outlook is advised for today.
Milan Vaishnav, CMT
Technical Analyst
(Research Analyst, SEBI Reg. No. INH000003341)
Member:
Market Technicians Association, (MTA), USA
Canadian Society of Technical Analysts, (CSTA), CANADA
+91-98250-16331
