SGX Nifty Breaks 17,800; Should you book profits or go short?

After breaking through its short-term high of 17,428 on Oct 18, 2022, the trend reversed from a bearish trend to an bullish one. The premise of this trend change can be noted via the formation of a higher high and a higher low as seen in the previous update on the Nifty 50. Since then, markets have turned in favor of buy-on-dip traders.

It had a meteoric rally overnight as it soared over 244 points and closed above 17,800 for the first time after September 15, 2022. Hence, the current close of 17,815.5 is the highest in over a month, clearly showing that the bulls are in charge. Major support came from the US markets which were heavily oversold a few sessions ago and therefore a recovery in the and the SGX Nifty helped the SGX Nifty move higher, due to the continued outperformance of the Indian markets against the States -United.

Image description: SGX Nifty daily chart with RSI at the bottom

Image source: Investing.com

Now, and from here? In Monday’s Muhurat trading session, the bulls would take advantage of their Diwali gift with an open close to 200-240 points, in line with the current close. Thus, those who are already long would have a good opportunity to make profits. The 17,800 level looks quite stretched now as this ongoing rally basically started from the 16,950 level, only confirmation came in at 17,428. Therefore, this 850 point stretch looks a bit over now.

However, there is absolutely no weakness seen in the index at the moment. Booking (NASDAQ:) profits on long positions is not the same as going short. In other words, while investors may be thinking of taking profits, they should not blindly sell the rally and wait for some sort of topside weakness before trying to go short.

For those who are comfortably seated in their long positions and want to trail their stop loss instead of booking ahead, the trendline (as seen in the chart above) could be a good level of support. for an aggressive exit, to protect most profits. This trendline can also be used as an early warning of a trend reversal.

Surprisingly, 17,600 CE for the October 2022 expiry has a high OI of over 60,000 contracts that would surely get ITM on Monday. Even 17,700 CE also holds an OI of 65.5,000 contracts, as traders weren’t expecting such a strong rally due to two holidays next week and were relying mostly on the theta decay.

To conclude, this market switched to buy-on-dip after October 18, 2022 and continues to strengthen. Even if a correction is due to profit booking, the trend will not turn negative, at least until it breaks below this trendline support or makes a lower and lower formation.