Nifty: Trade Setup: Bank, realty, pharma may continue to outperform now

After a strong move of over 400 points on the upside, Nifty on Wednesday did consolidate on the expected lines. However, it showed a lot of internal strength. The index opened on a modestly positive note and got stronger in the first hour of the trade.

Just when it looked as if the market was continuing with its unabated rise, some profit taking kicked in on the anticipated lines. Nifty came off over 175 points from the intraday high point. While Nifty did not display any extraordinary weakness, it ended the day with a net loss of 55.95 points, or 0.33 per cent.

The weekly options expiry falls on Thursday and options data is showing a mixed picture. On one hand, very high Call OI open addition was seen at 17,000 level even as the 17,100 level held the highest Call OI. On the other hand, strike price 17,000 not only saw the addition of highest Put OI, but it also held the maximum PUT Open Interest as well. This means unless there is a tactical change on either side, the market may stay capped in a limited range.

Volatility declined as was evident from INDIA VIX coming off 2.30 per cent to 14.1850.

A steady but soft start for the market is expected on Thursday. The 17,100 and 17,145 levels may act as immediate resistance points, while supports will come in at 17, 010 and 16,970 levels.

The Relative Strength Index (RSI) on the daily chart stood at 78.57. RSI stays in the overbought territory. However, it remains neutral and does not show any divergence against the price. The daily MACD remains bullish and continues to trade above the Signal Line.

A Black Body occurred on the candle. This was the result of the market closing below its opening level. Apart from this, no other important formation was noticed. Banking stocks put up a resilient performance. Along with them, realty stocks also performed strongly. This is a classic case of the sectors that have relatively underperformed Nifty in the recent past trying to play catchup. This fabric of the market is likely to persist for some more time.

We expect banking, realty and pharma stocks to continue to show improved relative performance in the coming days. Since the possibility of a range-bound consolidation is not ruled out now, we recommend staying highly defensive while approaching the market. While shorts may be avoided as the market undercurrent remains strong, all profits on the long side should be vigilantly protected.

(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)