Nifty: Trade Setup: Avoid shorts, Bank Nifty may play some catchup

The domestic equity market consolidated for the second day in a row on Thursday and ended absolutely on a flat note. The market saw a quiet opening on the expected lines. The index opened mildly negative, but soon crawled inside the positive territory. However, while it traded with modest gains, by afternoon, Nifty pared all its gains to slip into the negative zone.

The second half of the session saw Nifty oscillate in a very defined range. Until the end of the session, no meaningful move was seen on either side. The headline index eventually ended the session flat, posting negligible gain of just 2.25 points, or 0.01 per cent.

The expiry of the current month derivative series went off rather smoothly without any major volatile moves. Strike price 16,700 saw the highest Call open interest buildup throughout the day. This made sure that Nifty faces resistance at that point and sees some retracement from that level.

The 16,600 level saw the highest concentration of Put OI, which in turn offered support to Nifty. The 16,700 level has now become a key point of resistance of the narrow congestion zone that the market has created for itself.

Friday’s session may again see a quiet start to the day. The 16,700 and 16,785 levels are likely to act as key resistance, while supports may come in at 17,600 and 16,530 levels.
The Relative Strength Index (RSI) on the daily chart stood at 71.33.level; it remains mildly in the overbought zone. The RSI, however, is neutral and does not show any divergence against the price. The daily MACD remains bullish and trades above the Signal Line. One more Spinning Top emerged on the candles. This reflects indecisive behaviour among the market participants and demonstrates lack of directional consensus among the players.

All in all, we recommend approaching the market the same way that we have been suggesting over the past couple of days. The broader market is likely to remain more volatile and may tend to relatively undeprform the key indices.

Further, Bank Nifty has has not participated in the rally at all as Nifty piled up some 1,400 points in the recent runup. It is largely expected that this index is now overdue to play catchup with Nifty. It is very much likely that the largecap stocks, including banks, may relatively outperform the broader market. We recommend avoiding shorts as the market continues to display strong bullish undercurrent. It would be prudent to keep making selective purchases while vigilantly guarding profits at higher levels.

(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)