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Trade setup: Nifty overheated after 1,000-pt parabolic rise; take guard

Nifty is likely to face resistance at 9,995 and 10,080 levels.

Last Updated: Jun 02, 2020, 09.39 PM IST
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Trade setup for Monday: Residual Budget reaction to keep market depressed
The market has risen nearly 1,000 points in five sessions; recording one of the steepest climbs in recent times.
For the fifth session in a row, the domestic equity market continued to trend higher as liquidity chased stocks, something that is very typical of a risk-on setup in financial markets. The market shrugged off the rating downgrade by Moody’s, which also changed its outlook on India to ‘negative’. But the market made it a non-event. Nifty opened with modest gains, but pared all of it in the morning session. After that, it resumed its up-move and remained in a rising channel for the remaining part of the day. Nifty then went on to end the session with a net gain of 152 points, or 1.56 per cent.

The market has risen nearly 1,000 points in five sessions; recording one of the steepest climbs in recent times. Volatility has declined, with volatility gauge INDIA VIX coming off 2.04 per cent to 30.1150. The risk-on setup remains firmly in place, but it has made the market highly skewed in terms of risk-reward. Given this condition, investors are advised to stay away from making aggressive purchases.

With the market ending just at the resistance point, Nifty is likely to face resistance at 9,995 and 10,080 levels. Supports should come in much lower at 9,910 and 9,825 levels.

The Relative Strength Index (RSI) stands at 65.93; it has marked a fresh 14-period high, which is a bullish indication. The RSI, however, remains neutral and does not show any divergence against price. The daily MACD remains bullish and trades above the signal line. A white body appeared on the candle. Apart from this, no other important formations were noticed.


Liquidity has been chasing stocks tirelessly. When a risk-on environment is firmly in place, it causes liquidity to chase assets regardless of their values. In such times, assets tend to defy technical levels.

All in all, the best thing to do in the current setup is to approach the over-heated market with strict trailing stop losses in place. One needs to keep in mind that odds favour profit-taking at current levels more than ever, as Nifty has seen a parabolic up-move of nearly 1,000-points. A market that was oversold has turned overbought within no time on the short-term indicators.

We reiterate the need to approach the market with the highest degree of caution, chase up-move in an extremely vigilant manner and avoid aggressive purchases.

(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)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
(What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

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