Nifty: Trade Setup: Nifty may test 17,450; but stay cautious, protect profits

The domestic equity market continued to consolidate for the sixth day in a row on Tuesday, as Nifty ended the day with minor gains. The market saw a positive start to the session as Nifty opened higher and formed an intraday high point in the first hour of trade.

After that, the entire session saw the market gradually pare the opening gains. While no major weakness was seen, Nifty gave up the bulk of the gain by the end of the session. The final hour saw range-bound trade, and the headline index ended with a gain of 24.70 points, or 0.14 per cent.

The market breadth remained reasonably good, as 34 of the Nifty stocks ended on a positive note. However, F&O data presented a mixed picture. The 17,450 level saw maximum Call writing during the session. However, it is the 17,400 level that held the highest concentration of Call open interest. This signals modest chances that Nifty may try and test the 17,450 level. For this to happen, it will be crucial for the index to be able to move past the 17,400 level. Until this happens, the market will continue to consolidate.

India VIX slipped 3.20 per cent to 13.5750. Wednesday’s session is likely to see a stable start but the 17,400 and 17,445 levels are likely to act as potential resistance points. Supports will come in at 17,300 and 17,245 levels.

The Relative Strength Index (RSI) on the daily chart stood at 81.20; it remains neutral and does not show any divergence against the price. The RSI stays in the overbought zone. The daily MACD remains bullish and stands above the Signal Line. Apart from a black body that occurred on the candle, no other major formation was noticed.
Pattern analysis on the daily chart showed Nifty has created a new base near the 17,200 level. It has been creating such bases after intermittent consolidation as Nifty has kept on rising following its major breakout from the 15,900-15,950 zone.

Our analysis continues to be on the same lines as past few days; the market will remain highly stock-specific in nature. We expect the sectors that have relatively underperformed of late to try and continue improving their relative strength against the broader market. These include select stocks from the banking, realty, auto and IT sectors. While no sectoral dominance may be seen, stock-specific performance is likely to dominate the trading on Wednesday. While continuing to guard profits at higher levels, traders should have a cautiously positive outlook 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)