Trade Setup: Nifty’s decline below 14,500 may trigger consolidation; stay stock-specific

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Trade Setup: Nifty's decline below 14,500 may trigger consolidation; stay stock-specific


In a session typical of any weekly options expiry day, the domestic equity market traded much on the anticipated lines. However, it also continued to show inherent strength and strong undercurrents as it played out its usual template of some profit taking bout and then recovery during the day, while ending with a modest gain.

After opening on a modestly negative note, the early morning saw selloff which took headline index Nifty to the low point of the day. The remaining day saw the market gradually rebounding, and Nifty ended with a modest gain of 30.75 points, or 0.21 per cent, after recovering over 120 points from its low point.

ET CONTRIBUTORS

For the new weekly options series as well, 14,600 strike continued to see high Call OI build-up, followed by 14,800 strike. The highest Put OI stood at 14,500 levels, which has now become extremely crucial to watch not only in the next session but over the coming days as well. Any decline and close below 14,500 will see the market showing corrective moves and slip into a ranged consolidation. On the other hand, if it stays above this level for some time, its moving higher cannot be ruled out. Volatility cooled down a bit with India VIX coming off by 1.14 per cent to 23.0275.

Friday’s session may again have a quiet start to the day. The levels of 14,645 and 14,730 will act as resistance points, while support will come in at 14,510 and 14,450 levels. The slipping of the index below the 14,500 level is likely to make trading range wider than usual.

The Relative Strength Index (RSI) on the daily chart is 81.47; it stays in overbought territory and is still neutral without showing any divergence against price. The daily MACD is bullish and stays above its Signal Line. A Spinning Top has occurred on the charts. This calls for a cautious approach.

In the previous session’s charts, an “inside bar” formation was noticed, resulting out of a lower top and higher bottom formation. This makes the earlier high point of 14,653 a temporary resistance zone, unless broken. Until

Nifty moves past this point, it stays vulnerable to sharp profit taking bouts. The second half of the last session showed IT and pharma stocks staying in limelight, following weakness in early part of the day. These stocks are likely to show some extension of their move on the upside. We recommend avoiding shorts and following momentum cautiously, while adopting a highly stock-specific approach 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)





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