Trade Setup: Nifty faces resistance at 15,600-15,665, volatility likely to spike up

It was a day of fierce consolidation once again for Dalal Street as the Nifty50 index traded negative for the entire session but recovered to end flat. The market saw a modestly negative opening and gradually kept losing ground throughout the day. In afternoon trade, the Nifty index slipped below 11,500 as well. However, the last hour and a half of the session saw the index recover over 100 points from the day’s lowest level. Nifty recovered all its losses and even crawled inside positive territory briefly. The headline index finally ended with a 1.35-point gain.

The index might have ended flat, but has made a lower top and lower bottom formation on the daily chart. The market breadth did not remain so strong, with 23 of its 50 components declining. Moves will remain dominated with options centric activities as the market enters the expiry of the weekly series. The 15,700 strike saw a million shares of call open interest being added, and 15,700 holds the maximum call open interest with total open interest of 4.8 million. Unless a tactical change occurs, this is likely to act as resistance for the coming trading session.

Volatility decreased with the India VIX index falling another 1.02 per cent to 17.21. This remains at one of its lowest readings, near levels seen only in early 2020. It also remains a near-term concern for the market.

Thursday will see the levels of 15,600 and 15,665 act as resistance. Supports will come in at 15,480 and 15,400 levels.

The Relative Strength Index (RSI) on the daily chart is at 68.90. It is neutral and does not show any divergence against the price. The daily MACD is bullish and above its signal line. No significant formations were seen on the candles.

A pattern analysis shows the breakout above 15,430 being active, valid and in place. However, the Nifty50 index is consolidating at higher levels, and is likely to consolidate and probably even see a throwback that may see 15,430 being tested again, though Wednesday’s trade saw the index pull back from 15,459.

Overall, with a breakout not taking a logical directional bias and with volatility at a multi-month low, it would be prudent not to take the present breakout for granted. It would be wise to continue to follow the upmove while continuing to take a highly stock-specific approach. Profits should be guarded at higher levels. Volatility is likely to spike up in the coming session. This will need a highly vigilant and cautious approach towards the market.

(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)