Nifty: Trade setup: Profit taking to continue, Nifty’s key resistance at 15,800 level

The domestic equity market continued to consolidate on Monday and came off its high point to end on an absolutely flat note. Nifty showed no directional bias, showed no inclination to move higher and corrected through the day.

The market saw a stronger-than-expected start to the session. Nifty opened higher and sustained most of its gains through the first half of the day. The afternoon session saw a violent shakeout and Nifty came off over 100 points from the high point of the day. Following range-bound trade and some recovery, the headline index ended flat with a negligible gain of 2.80 points, or 0.02 per cent.

The technical picture remains evidently weak. Strike prices 15,700 and 15,800 saw significant Call writing during the day. The 15,800 level continued to hold maximum Call Open Interest. The index has seen the resistance level shift lower from 16,000 to 15,800 levels.

Some modest Put unwinding was also seen at 15,700 level, indicating a fragile approach among the market participants to take a buoyant view on the market. Volatility remains unchanged. INDIA VIX rose marginally by 0.38 per cent to 12.9925 level.

Tuesday’s session may see a tepid start. The short-term resistance points have shifted lower. Nifty may face resistance at 15,750 and 15,830 levels, while supports may come in at 15,600 and 15,535 levels.

The Relative Strength Index (RSI) on the daily chart stood at 51.37 level; it remains neutral and does not show any divergence against the price. The daily MACD remains bearish and stays below the signal line. A Black Body occurred. Apart from this, no other significant formations were seen on the charts.

Pattern analysis showed Nifty has formed a strong resistance in the 15,850-15,900 area and the 15,900 level has become an intermediate top for Nifty unless this level is taken out convincingly. The market has been consolidating in a very narrow band with a downward bias.

All in all, if we examine the short-term technical setup, the picture looks weak. Options data suggested Call writing at levels below the 16,000 mark, which has bought the short-term resistance point lower to 15,800 level. The market will continue to see bouts of profit taking at higher levels, unless the upper resistance zone of 15,850-15,900 is taken out forcefully and in a convincing manner. We recommend continuing to stay highly stock specific. While keeping exposures at modest levels, we suggest using every bounce, if at all they occur, to protect profits at higher levels.

(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)