Nifty: Trade Setup: Be selective in this market; stick with largecaps

Ahead of the expiry of August series monthly derivative contracts, Indian equities once again consolidated as they traded in a range and ended positive, but with negligible gains. The market saw a positive start to the day; it got stronger in the evening trade while continuing to post fresh lifetime highs. It was in the middle of the day that the market saw a sudden bout of profit taking at higher levels. Nifty saw a recovery once again in the afternoon trade, but once again pared the gains to trade on a flat note.

In the end, the headline index closed with a negligible gain of 10.05 points (+0.06 per cent). Thursday’s session will see the expiry of both routine weekly options as well as the August F&O contracts. Strike prices 16,500 and 16,600 have seen a good number of unwinding of Call Open Interest. At the same time, strike price 16,600 has seen the addition of large Put open interest. This means unless there is a major tactical shift, the market is not expected to violate the 16,500-16,600 range in event of any corrective move. On the other side, highest Call OI stood at 16,700 level. Unless this shifts, the upside moves will also stay capped.

Volatility increased a bit; INDIA VIX rose by 2.35 per cent to 13.4975. Thursday’s session is likely to see the 16,700 and 16,765 levels act as immediate resistance points, while supports will come in at 16,580 and 16,525 levels.

The Relative Strength Index (RSI) on the daily chart stood at 71.26 level. It remains neutral and does not show any divergence against the price. The RSI also remains mildly in the overbought zone. The daily MACD remains bullish and is above the Signal Line. A Spinning Top occurred on the charts. This type of candle emerging near the high point may cause the market to consolidate a bit.

It also shows a tentative approach and lack of directional consensus among the market participants. Overall, the analysis for Thursday remains more or less the same. Nifty is near its lifetime high point; moving past the 16,700 mark will be crucial for another meaningful bounce. However, as long as Nifty is below the 16,700 level, the chances are higher of it consolidating in a defined range. It is recommend to continue approaching the market with a selective approach. It would be prudent to stick with largecaps that are showing improvement in their relative strength against the broader market. A cautiously positive outlook is advised for the day.

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