Nifty setup: Trade Setup: Nifty likely to stage a reversal; 17,100 key resistance

Amid concerns over a new version of the virus, the markets traded much along the expected lines. Nifty saw a shaky start to the day. However, after slipping below the 16,800-mark in the first hour of the trade, what followed was a remarkable recovery from the low point by the index. It moved higher by over 375-points from the low but came off those levels as well. The index held on to some gains and stayed in the positive zone to close 27.50 points or 0.16 per cent higher.

From a technical perspective, a few important things need to be noted. The markets did not have a continuation of panic reaction and formed a candle that can be potentially a reversal candle as it emerged near the support. Furthermore, the Nifty has managed to precariously hang on just a notch below the 100-DMA which stands at 17,114. The smallest of the pullback will take Nifty above this point.

Now, it is extremely crucial for Nifty to defend 100-DMA as a support on a closing basis. Nifty will largely stabilize if this level is defended, failing which, however, we may see fluid behaviour of the markets staying for some more time.

Volatility, meanwhile, hardly changed as India VIX moved higher by 0.13 per cent to 20.83. If the US markets support the global trade setup handover on Tuesday, we can expect a positive and stable start to the day. The levels of 17,100 and 17,230 are expected to act as resistance points. The supports come in at 17,000 and 16,910 levels.

The Relative Strength Index (RSI) on the daily chart is 32.20 and remains neutral. It does not show any divergence against the price. The daily MACD, however, is bearish and below its signal line.

On the charts, a Doji candle with a long lower shadow emerged. The emergence of a Doji also hints at a potential reversal. Furthermore, an occurrence of a candle with a long lower shadow also hints at a formation of a potential reversal point as it has occurred very near to pattern support.

The analysis of the Options data shows that PUT writing happened at 16,800 and 16,900 levels. This signifies that market participants do not expect Nifty to slip lower than this zone. The strikes of 17,000 hold the maximum Call OI. All this is subject to change but this gives a present time situational awareness of the trade setup.

We recommend even if there are jitters on Tuesday, adding fresh shorts must be avoided. All fresh purchases should also be very limited and stock-specific until there is some visible stability in the markets.

Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of equity research.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia