Nifty50: Trade Setup: Expect action in broader market; select stocks may outperform

The domestic equity market had a better-than-expected session on Tuesday, and it not only ended the day on a robust note, but also prepared the stage for another runup. The overnight global trade setup and Asian markets were weak in the morning; but the domestic market opened on a very resilient note. It not only averted an expected gap-down opening, but also marked its low point in the very early minutes of the day.

After opening on a mildly negative note, Nifty stayed in a range in the first hour of trade. It managed to recoup the opening losses and traded flat in the first half of the session. The second half saw the return of strong momentum. Nifty moved past the 17,800 level and ended near the high point of the day with a decent gain of 131.05 points (+0.74 per cent).

The 17,800 level now becomes the inflection point for Nifty for the rest of the week. If the index manages to stay above the 17,800 level, there will be greater chances of it moving higher and trying to move past or test the 18,000 level.

Going by options data, the 17,600-17,800 zone not only saw unwinding of Calls Open Interest, but also witnessed additional Put writing across this area. The 17,800 level has the second highest accumulation after the 18,000 level. If Nifty stays above the 17,800 level for long, even this strike price is likely to witness heavy Call unwinding, causing the index to move higher.

Volatility edged lower; India VIX moved lower by 2.02 per cent to 16.3975. Wednesday’s session is likely to see the 17,880 and 17,950 levels act as key resistance points. Support will come in at 17,800 and 17,710 levels.
The Relative Strength Index (RSI) on the daily chart stood at 67.51; it remained neutral and did not show any divergence against the price. The daily MACD stayed bearish and below the Signal Line. A strong White Body emerged on the candle. This reflects a strong directional bias of the market participants on the upside.

The market has become stock-specific and will remain that way for the rest of the week. The broader market has started to relatively outperform Nifty once again. Sectoral and stock-specific outperformance may continue in select bank, auto, pharma and PSE stocks. We recommend not attempting to short the market; instead, use the consolidation periods to make select purchases. A cautiously positive outlook 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)