Trade Setup: Nifty upside may remain capped near 18,500; avoid shorts

In the previous technical note, it was mentioned that the price behavior of domestic headline equity index Nifty against the levels of 18,200 will decide the trend for the day. The Indian equity market continued to put its resilient foot forward as compared with its peers on Thursday; showed a strong relative outperformance and ended the day on a strong note.

After a gap-up opening above 18,200, it remained above that point throughout the day. Although the session stayed range-bound, the index tested its crucial levels. Some paring of gains was seen in the middle of the session but the market managed to recover again to end at the high point. The headline index ended with a gain of 176.80 points or 0.79 per cent.

Monday will see the Indian market adjusting to the global trade setup as Friday was a holiday on account of Dussehra. Given the neutral to positive setup, we can expect a stable start to the day on Monday.

At higher levels it is likely that the market may show some tendency to consolidate. Options data suggests that lot of Put writing was seen at 18,300 strikes. Overall, the November monthly expiry options data suggests a range of 18,000-18,500 for Nifty as of now. This means that even if some incremental up move happens, upsides may remain capped near 18,500 levels.

Monday’s session is likely to see the levels of 18,385 and 17,440 acting as resistance points, while support will come in at 18,300 and 18,210 levels.
The Relative Strength Index (RSI) is 75.83; it remains overbought. RSI also continues to show a mild negative divergence against price. The MACD is bullish and traded above the Signal Line.

A rising window occurred on the candles. It is the second such rising widow. Such a formation results out of a gap-up and resolves with the continuation of the uptrend. However, this will need confirmation on the next trading day.

If we interpret the current technical setup and have a look at the pattern analysis, it appears that Nifty has its internal strength intact. However, at the same time, looking at the overbought nature and the shedding of OI that was seen in Nifty current month futures on Thursday, there are high chances that the index may consolidate

once again at current or higher levels. It is unlikely that it will move past 18,500 level without taking a breather.

We recommend not shorting the market at all as the internal strength remains intact and there are no signs that would suggest shorting the market. On the other hand, we recommend to focus more on protection of profits at higher levels instead of making new purchases. Fresh buying should be limited and highly selective in nature while avoiding excessive leveraged exposure. 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)