Nifty: Trade setup: Stay with stocks of relative strength

The equity market continued to remain under corrective pressure and ended yet another day on a negative note. It saw much weaker- than-expected opening and soon was gripped by a strong corrective move.

Nifty slipped sharply and went below crucial intraday supports; it went very near to the 15,500 level. However, the remainder of the session saw a equally remarkable turnaround; Nifty saw itself recovering nearly 200-odd points from the intraday lows. The headline index finally ended the day with a modest loss of 37.05 points (-0.24 per cent).

We have both weekly options expiry and the monthly derivatives expiry lined up in the next session. The 15,800 and 15,900 levels have seen heavy call writing; this may keep all expected pullbacks limited and defined. On the lower side, highest Put OI stood at 15,600-15,700 levels. This will keep the lower side limited as well.

Broadly, we can expect a session with a defined range on the expiry day. Nifty’s behaviour against the price level at 15,700 will be crucial. Volatility continued to inch higher; INDIA VIX rose by 3.48 per cent to 13.6925.

Thursday’s session can see the 15,780 and 15,845 levels of Nifty act as resistance points. Supports come in at 15,650 and 15,580 levels.

The Relative Strength Index (RSI) is at 48.35; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line.

A Classical Hammer occurred on the candles. This shows discomfort among the market participants at lower levels; the occurrence of the Hammer between 15,500 and 15,550 marks this zone as its important support area for the near term.

All in all, Nifty has now ended up defining a broad sideways consolidation range for itself. With the 15,900-15,950 zone acting as the upper resistance zone, the support area now exists between 15,500-15,600 zone. The 50-DMA, which presently stands at 15,664 is expected to act as a important near-term support point for the Nifty on a closing basis.

We recommend continuing to approach the market on a selective note. A cautious approach is required while scouting for stocks, which have better and improving relative strength against the broader markets. A continued cautious view is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Equity Research.asia and ChartWizard.ae and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)