Nifty: Trade Setup: Broader market lags; expect tactical shift to defensives

While trading much on the anticipated lines, the Indian stock market consolidated but still went on to end on a positive note. The market saw a modestly positive start to the day.

However, Nifty soon drifted into the negative territory in the first hour of the session even as it marked its low point for the day. By afternoon, the market managed to crawl back to the positive territory. It grew stronger as the day progressed, but came off its high point in the last hour of trade. The headline index finally managed to end the day with a net gain of 35.80 points (+0.22 per cent).

The expiry of the weekly options played out within the defined lines. The 16,300 level continued to see maximum Call OI concentration; this prevented Nifty from sustaining above this point. The maximum Call OI for the coming week was seen at 16,300 followed by 16,500 levels; this hints at likely opening up of further upsides for the market.

However, Nifty will attempt to move higher only if it is able to move past the 16,300 level and sustain above it. If Nifty struggles around the 16,300 point, we will see Nifty consolidate once again in a defined range.

Volatility continued to drift lower; INDIA VIX declined by 2.57 per cent to 12.8725. Friday’s session is likely to see a tepid start to the day. The 16,325 and 16,390 levels will act as key resistance points, while supports will come in at 16,180 and 16,120 levels.

The Relative Strength Index (RSI) on the daily chart stood at 70.43; it has marked a new 14-period high, which is a bullish signal. The RSI is now mildly in the overbought territory. However, it remains neutral and does not show any divergence against the price. The daily MACD remains bullish and well above the signal line.

Pattern analysis showed Nifty has continued to extend its bounce following a breakout above the 15,900-15,950 zone. This breakout remains very much valid and in place. In the process, the index has dragged its support levels higher to the 15,900-15,950 area.

All in all, the market is again likely to consolidate near current level within a defined range. In the event of any corrective activity, the breakout will remain very much in place so long as Nifty stays above 16,000 level. However, we are very much likely to see the tactical shift towards defensive largecaps, as the broader market continues to underperform on the relative basis. We recommend avoiding shorts and continuing to focus on the largecaps and defensives while guarding profit at each incremental 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)