Trade setup: Nifty has very limited upside left; take some money off the table

One more day for the markets and one more incremental high for Nifty, with internal strength that is getting distinctly weaker. The market opened modestly higher and spent the entire session in a defined and capped range without making any directional move on either side. Following a positive start, the Nifty marked another lifetime high of 15,901, and spent the rest of the session in a sideways trajectory, while coming off from its highs. The index spent the entire day in a very narrow 60-odd points range before it closed with a net gain of 57.40 points or 0.36 per cent.

Markets have perhaps reached a stage where it is screaming caution at current levels. There are classical distribution signs appearing and from the professional angle, it makes no sense to give a mindless chase to the markets. The present technical structure once again points at the ample time that the markets are giving to the retail traders to protect their profits and take some money off the table. The volatility remained at lower levels; India VIX came off marginally by 0.74 per cent to 14.60. Nifty is now very evidently left with very limited upsides unless it sees the long overdue corrective move.

Wednesday may again see a quiet start to the day. The levels of 15,930 and 15,980 will act as resistance points. Support will come in much lower at 15,780 and 15,690 levels. Corrective moves, if any, will make the trading range much wider than usual.

The Relative Strength Index (RSI) on the daily chart is 71.69; it remains overbought and also continues showing a bearish divergence against the price. The daily MACD, while staying bullish and above the signal line, is distinctly showing deceleration of momentum.

Following a Hanging Man that emerged on the candles in the previous session, a Shooting Star occurred this time. This also is a bearish candle and holds a potential of disrupting the uptrend.

The markets remain overbought, showing a bearish divergence on the lead indicators, and also shows a decelerating momentum along with the not-so-strong market breadth. All this hints at a fragile technical structure that the markets have reached at present. It is now amply evident that the markets are left with very limited upsides unless they see some meaningful correction or some serious consolidation. If this is not happening, the present unabated up moves will get absolutely unhealthy for retail investors. While not giving a mindless chase to the markets anymore, investors instead should focus only on protecting profits at current levels. A very cautious view is advised for the day.

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