Nifty: Trade Setup: Nifty50 to remain rangebound; stay high stock-specific

After a strong technical rebound in the previous session, Nifty50 chose to consolidate as it ended the session with a modest cut. Nifty50 opened on a positive note; it marked its high point in the early minutes of the day. It tested the 18000-level and expectedly found some resistance there. The markets gradually pared their opening gains to slip in the negative territory. For most of the session, Nifty50 didn’t take any directional view despite trading with a negative bias. Some weakness was seen in the late afternoon session which was followed by a modest recovery from lower levels. Nifty50 ended the day losing 40.70 points (-0.23 per cent).

Markets have a couple of factors to deal with this week. Firstly, the FOMC meeting starts today; the taper worries, the outcome of the meet that will come on Wednesday night, and its commentary is something that the markets will react to. Additionally, Wednesday is practically the last working day of the week as Thursday will host just a symbolic one-hour Mahurat trading session. Hence, weekly options will expire on Wednesday instead of Thursday. Given the options data, it is seen that Nifty50 is likely to stay range-bound with the level of 18000 acting as resistance on the upside.

Volatility declined as India VIX came off by 1 per cent to 17.0625. On Wednesday, Nifty50 is likely to see resistance at the levels of 17930 and 18000. Supports come in at 17800 and 17745 levels.

The Relative Strength Index (RSI) on the daily chart is at 49.82; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and it is below the signal line.

Nifty50 formed a black-bodied candle on the daily chart; apart from this, no other formations were noticed on the candles.
The fabric of the markets has been highly stock-specific over the past couple of weeks. It is likely to remain this way at least for the immediate near term. We are unlikely to see any sectoral dominance from the relative performance point of view. We will see those stocks outperforming whose results are out of the way, and whose Relative Strength against the broader markets is improving. The midcap universe is likely to continue outperforming relatively against the broader market. We recommend staying highly stock-specific, avoiding shorts, and keeping leveraged positions to modest levels. 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 (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)