Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

Is the Market Overheated? – Market Profile Analysis on Nifty Futures – June Series

1 min read

Nifty Futures have been on an impressive run, hitting new highs after recovering from the election day crash. However, recent price action and market profile analysis suggest that the market might be facing some short-term overheating. Let’s break down what’s happening and what traders should be watching.

Recent Price Action and Market Context

Nifty Futures have been climbing steadily, but a few key indicators are signaling caution:

  1. Strong Excess Formation:
    • The profile chart shows a strong excess, which typically indicates that the market encountered significant resistance at higher levels. This excess suggests that buyers struggled to maintain higher prices, leading to a notable sell-off.
  2. Volatility and RSI:
    • India VIX, which tracks market volatility, has dropped from over 31 to below 13 but recently increased by 5.77%, closing at 13.71. This uptick suggests volatility is returning.
    • The hourly RSI has been declining from overheated levels, pointing towards a potential short-term correction.

Market Profile Analysis

Here’s a closer look at the Market Profile, which helps visualize where most trading activity is happening:

  1. Point of Control (POC):
    • The POC, where the highest volume of trades occurred, is positioned lower than the recent highs, suggesting the fair value according to market participants is lower. This supports the case for a pullback.
  2. Value Areas:
    • The distribution of TPOs (Time Price Opportunities) indicates that the market has been rejecting higher prices, with sellers stepping in aggressively at those levels.
  3. Excess Zone:
    • The strong excess zone is likely to act as short-term resistance. For the current week, we’re looking at downside targets in the 23250-23300 range.

Nifty Futures – Daily Charts with Turbo RSI Indicator

Short-term vs. Medium-term Outlook

Short-term Outlook: The market shows potential selling pressure in the short term. The critical level to watch is the June 19th low. A break below this level would confirm the bearish sentiment, pushing prices towards the 23250-23300 range.

Medium-term Outlook: Despite short-term bearish signals, the medium-term trend remains bullish. The market structure shows higher highs and higher lows, indicating a continued uptrend. Traders should adopt a “buy on dips” strategy, looking to enter on pullbacks.

Trading Strategy

For Short-term Traders:

  • Look for shorting opportunities if the price breaks below the June 19th low.
  • Target downside levels around 23250-23300.
  • Be cautious of potential reversals to avoid getting caught in short squeezes.

For Medium-term Traders:

  • Use dips as buying opportunities in line with the overall bullish trend.
  • Place buy orders near the expected downside targets or at key support levels identified in the Market Profile.
  • Maintain a stop-loss slightly below the June 19th low to manage risk.

While Nifty Futures show signs of short-term overheating, the medium-term outlook remains positive. Traders should prepare for a potential pullback, which can provide attractive entry points for those looking to ride the longer-term uptrend. By combining Market Profile analysis with vigilant monitoring of key levels and indicators, traders can navigate the current market dynamics effectively.

Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

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