Trade Setup: Nifty to consolidate further; stay away from high beta stocks

The markets were at their resilient best as it staged a remarkable recovery during the day to close on a strong note. Nifty50 saw a jittery start to the day; it spent the initial minutes of the trade range-bound. The benchmark index slipped into the red after trading positively during the first hour of the day. It seemed Nifty50 was finding it difficult to penetrate the important 17450-level; however, in the second half of the day, Nifty saw a remarkable recovery. The index rebounded over 225 points from the day’s low. It also managed to penetrate and close above the important 17450-level. The headline index finally ended with a decent gain of 165.10 points (+0.95 per cent).

From a technical perspective, Nifty50 crawling back above 17450 is a positive development. This level was the most immediate basing point which the index had violated. From the most near-term perspective, the zone of 17400-17450 should continue acting as an important support for the markets. Meanwhile, there was a spate of short-covering from the lower levels; this was evident as the upsurge has resulted in the reduction of net open interest. Moreover, the strike of 17400 has seen heavy Put writing and OI addition; signalling, this point may offer support to the markets during the current phase of consolidation.

Wednesday’s session is likely to see the levels of 17600 and 17635 as immediate resistance points. The supports come in at 17510 and 17400 levels. The trading range may remain wider than usual over the coming days.

Volatility, which had spiked in the previous session reduced; India VIX slipped by 5.56 per cent to 16.5200. The Relative Strength Index (RSI) on the daily chart is at 72.36; it remains slightly overbought. It is neutral and does not show any divergence against the price. The daily MACD is bearish and below its signal line. A white body candle emerged; apart from this, no other formations were observed.

All things considered, the markets are likely to continue consolidation for some more time in a broad range. So as long as the Nifty50 is able to defend its most recent basing point, this broad range is likely to be the zone of 17400-17490. Until Nifty remains within this zone, we will see the markets continuing to stay highly stock-specific. We recommend staying away from high beta stocks. Purchases should be kept focused on select banking and realty stocks along with other stocks which are defensive in nature and are showing improved Relative Strength against the broader markets. A cautiously positive approach 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)