market outlook: Trade setup: Nifty may correct more if it fails to reclaim 15,800; upside appears limited

On much-anticipated lines, the Nifty finally showed some intent to correct. The markets halted its unabated up move, retraced, and ended the day on a negative note. Nifty opened on a softer note, but soon crawled inside the positive territory briefly to mark the high point of the day. However, after staying briefly in the positive territory, it again slipped back in the negative zone.

The market continued drifting lower and showed no intent to recover at any point in time. The Nifty came off nearly 14-odd points from the high of the day and closed with a net loss of 101.70 points or 0.64 per cent.

The market breadth remained much weaker as 41 out of 50 Nifty stocks declined. We have weekly options expiry coming up, and Wednesday’s session has thrown some grim insights. The 15800, 15850, and 15900 saw heavy Call writing; the 15,800 strike added over 3.4 million shares in Call OI. 15,900 continues to hold a maximum Call OI of 6 million. This means that unless 15,800 is taken out on Thursday, Nifty is in for some continued corrective move. Even if the markets manage to crawl above 15,800, the upsides are evidently very limited.

Despite the corrective move, volatility did not increase much. India VIX rose marginally by 1.78 per cent to 14.8650. Importantly, the Put OI unwinding at 15,800, 15,850 and 15,900 levels also hints at definite onset of weakness unless some tactical change happens. Nifty’s price action against the level of 15,800 would be very crucial to watch for Thursday’s session.

The levels of 15,800 and 15,860 will act as resistance; supports will come in at 15,680 and 15,600 levels.
The Relative Strength Index (RSI) on the daily chart is 65.44; it has crossed under 70 from an overbought area, which is bearish. The RSI is neutral and does not show any divergence against the price. The daily MACD is bullish. However, the slope of the Histogram is narrowing, and it is on the verge of giving a negative crossover. Apart from the black body that occurred, no other formations were seen on the candles.

All in all, the weakness in the markets is evident. The zones of 15850-15900 have now become a potential intermediate top for the markets. Unless this zone is taken out, markets will continue facing stiff resistance and selling pressure at current and higher levels. We reiterate to avoid building heavy long leverage exposures. New purchases should be kept moderate and defensives and low beta stocks or sectors should be preferred. A highly cautious outlook 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