Nifty: Trade Setup: 15,850 level key; market may slip into consolidation below this

The Indian equity market inched higher on the anticipated lines on Thursday and Nifty marked a fresh lifetime high and closed at its highest level. In Wednesday’s note, we had pointed out that Nifty had made some room for itself to move higher as the maximum Call Open Interest shifted higher to 16,000 level. The market opened on a quiet note, but gradually moved higher and maintained its gains through the day. At close, the headline index ended with a net gain of 70.25 points, or 0.44 per cent.

Options data for next week suggests Nifty has visibly shifted its resistance point further higher to 16,200 level, as this strike holds maximum concentration of Call Open Interest at the beginning of the new options week. From the technical perspective, Nifty has increased the chances of a potential resumption of the rise, if it is able to keep its head above 15,850 level. As long as these levels are defended, there is a possibility of incremental rise. A violation of the 15,850 level will see the market slip into consolidation again.

While a stable start is expected to the day, the 16,000 and 16,045 levels will act as potential resistance points while supports will come in at 15,850 and 15,810 levels. The trading range is expected to remain wider than usual.

The Relative Strength Index (RSI) on the daily chart stood at 62.45 level. It showed a bearish divergence against the price. While the price made a fresh 14-period high, the RSI did not, and this resulted in a bearish divergence. The daily MACD remains bearish and stays below the Signal Line.

Pattern analysis showed Nifty marked its previous high of 15,915 a couple of weeks back, and consolidated in a defined range after that. This time, it has marked a fresh incremental high. It would be a test to see if this results in the resumption of the uptrend following a sideways consolidation.

All in all, there are possibilities of some resumption in the upward move. However, for this to happen, it would be crucial for Nifty to keep its head above 15,850 level. As long as this level is defended, we may see some more upside. On the other hand, if the 15,850 level is violated, then the market may slip into consolidation again. As we follow the trend, we must not forget that the internal strength and the market breadth remain weak and not as much strong as it should be. Because of this, traders should keep trailing stop losses as they follow the momentum and keep protecting 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)