Nifty: Trade Setup: Nifty to remain range bound with support at 17300-level

The Indian equity markets put their internal strength on display yet again as they consolidated and ended one more time on a flat note. The markets saw a quiet opening on the expected lines and traded flat in a narrow range in the first half of the session. Until the afternoon, Nifty50 stayed range-bound and took no directional bias. A sudden profit-taking wave gripped the markets as Nifty lost ground rapidly. However, in the last 90 minutes of the trade Nifty recovered in an equally remarkable fashion to recoup all its losses. The headline index rebounded over 120 points from its low point to end with a negligible loss of 8.60 points (-0.05 per cent).

Thursday is not only the weekly options expiry day but also the last trading day of the week. Friday will be a trading holiday on the observance of Ganesh Chaturthi. The weekly options data shows that the strikes of 17300 saw maximum Put OI addition; this level also holds the highest Put OI accumulation. This indicates that the level of 17300 is expected to act as potential support if the consolidation continues in the market. Volatility increased a bit; India VIX edged higher by 3.26 per cent to 14.4100.

The Relative Strength Index (RSI) on the daily chart is at 81.58 and it stays in overbought territory. RSI also remains neutral as it does not show any divergence against the price. The daily MACD is bullish and stays above its signal line.

Nifty50 formed a ‘Hanging Man’ candle on the daily chart. Since this candle has occurred following an uptrend and near the high levels, it has the potential to lead the markets to take some breather and push it into some consolidation. However, any such formation will require a confirmation on the next bar.

The pattern analysis shows that the Nifty has staged a very strong breakout above the 15900-15950 area; it has kept inching higher while taking intermittent breathers. In the process, it has created basing points at each higher level. The most recent basing point remains near 17200-level, and this makes it an immediate support point in the near term.

All in all, we expect the markets to continue staying range-bound on the expiry day of the weekly options series; this also happens to be the last trading day of this truncated week. We recommend avoiding shorts as there are no definite signs of weakness on the charts. In fact, rebounding from lower levels each time there is some short-lived correction shows the internal strength of the markets. However, in the same breadth, unless the Nifty moves past 17500-level, any aggressive purchases also should be avoided. A continued stock-specific approach while staying alert to any profit-taking wave at higher levels 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)