Nifty: Trade Setup: Nifty getting back fresh upside momentum; avoid shorts

On a day when Nifty moved in a technically important range, Nifty marked a fresh lifetime high point, as it took out its earlier intraday high. Following a tepid start on the expected lines, the market opened flat and slipped into the negative territory for a very brief period in the initial minutes of trade, when Nifty marked its low point of the day.

After crawling back into the green, the index grew stronger in the morning trade. Nifty not only moved past the previous high point, but also went past the psychologically important 18,000 mark. Nifty later pared the gains in the second half of the day, but still managed to close at its lifetime high on a closing basis with a gain of 50.75 points, or 0.28 per cent.

Nifty has ended just at its previous high point of 11,947. It has attempted a breakout by testing the incremental high of 18,041. However, it is important to note that the breakout has been attempted, but not yet confirmed. A breakout shall happen when Nifty keeps its head above the 17,947 level and subsequently move past the 18,000 level convincingly.

Options data presented an interesting picture. While the 18,000 level continued to have the highest accumulation of Call Open Interest, the same level also saw the highest amount of Put writing. This speaks of the inherent strength of the market. If Nifty stays above the 17,950 level for long, it may see another thrust upward.

The 18,000 and 18,090 levels are likely to act as potential resistance points, while support should come in at 17,880 and 17,850 levels.

The Relative Strength Index (RSI) on the daily chart stood at the 67.20 level; it showed a mild negative divergence against the price. The daily MACD remains bearish and stays below the Signal Line.

However, the narrowing slope of the histogram hinted at the return of momentum with some thrust on the upside. No major formations were noticed on the candles.

The highlight of the previous session was of a stark sectoral outperformance from the banking, auto and the PSU stocks along with isolated outperformance in the broader market and power companies. Such stock-specific performance will continue in the market in the coming days as well.

We recommend avoiding shorts because if any consolidation occurs, that will be a sign of strength. There are no technical signs in the market that hinted at any impending larger corrective move as of now. Looking at the current technical setup, we recommend continuing to make selective purchases while protecting profit at higher levels.


(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)