Trade Setup: Nifty unlikely to hit 14K on Wednesday amid F&O rollovers

After a nasty corrective move on the 21st of December, the domestic equity market continued to post gains for the fifth session in a row as it ended yet another day with a modest gain.

Headline index Nifty opened on a modestly positive note and marked its intraday high in the first hour of the trade. Following this, in the late afternoon, the index witnessed a volatile and sharp paring of gains. Nifty not only wiped out its morning gain, but also slipped into the negative zone. However, the second half of the session was spent staging a recovery. Nifty ended with a net gain of 59.40 points or 0.43 per cent.

Banking stocks, accompanied by financial services and private bank indices, outperformed the frontline index. As we approach the penultimate day of the expiry of the current derivative series, the session will stay highly influenced by rollover centric activity. Weekly options data suggested maximum Call OI built-up at 14,000 levels. The market is unlikely to move past this point as of now.

Going ahead for the next few days, keeping a close eye on Nifty’s behaviour against this price point would be crucial. Volatility increased a bit with India VIX rising 1.77 per cent to 20.79.

Wednesday’s session is likely to have a quiet start to the day. The levels of 13,955 and 14,010 will act as resistance points while support will come in at 13,875 and 13,810.

The Relative Strength Index (RSI) on the daily chart is 71.40; it remains mildly overbought above 70. The RSI also shows a strong bearish divergence against price. The daily MACD is bearish and remains below the Signal Line. A spinning top occurred on the candles. Such spinning tops often results out of a small real body and denotes some

level of discomfort and indecisiveness of market participants.

The analysis for Wednesday stays much on the existing lines. Nifty is again prone to some profit taking or consolidation in a defined but wide range. If this does not happen, the market is making itself vulnerable again to some violent profit taking bouts at higher levels. We recommend continuing to follow the trend in a cautious way. While staying put with defensive stocks and remaining highly selective in approach, a vigilant protection of profits is advised at higher levels.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)