Nifty: Trade Setup: Nifty to remain range-bound; 18500-level may act as key resistance point

Indian equity markets continued their losing run for the second day in a row. The markets saw a stable start to the day on expected lines, but it soon slipped into the negative territory. However, the markets recovered in the first hour of the session while Nifty50 also went on to mark its day’s high. However, corrective pressure soon gripped the markets again as Nifty50 slipped into the negative territory and gradually lost ground. The index stayed in the negative territory throughout the day. While some recovery from the low point of the day was seen, the headline index ended the day with a net cut of 152.15 points (-0.83 per cent).

We enter the weekly options expiry on Thursday and the options data show that the markets may continue to stay under corrective pressure. All technical pullbacks, as and when happens, will remain limited. No major downside cracks may happen but any runaway up moves are also less likely. The options data shows that while 18400 saw the highest call writing on Wednesday, the strikes of 18500 continue to hold maximum Call OI. Unless there is a major thrust on the upside, Nifty is unlikely to move past this point. On the lower side, 18000 continues to hold the highest Put OI.

There are possibilities of Nifty50 trying to get some stability after two days of wide-ranging moves. The levels of 18290 and 18335 are likely to act as resistance. The supports are likely to come in at 18200 and 18165.

The Relative Strength Index (RSI) on the daily chart is 67.01 and it remains neutral and does not show any divergence against the price. The RSI has slipped below 70 from the overbought zone. The daily MACD is bullish and continues to trade above the signal line.

Nifty50 formed a large black body candlestick. It reflects the directional consensus of the market participants on the downside.
The pattern analysis shows that the Nifty50 has marked a temporary top near 18600 levels; unless this point is taken out, it is unlikely to show any runaway moves. On the other hand, it has created a base in the 18000-18200 zones; this marks a broad consolidation zone between 18000-18600 levels.

Thursday’s session is likely to stay influenced with weekly options expiry. In absence of any positive thrust, Nifty50 is unlikely to move past 18400 levels and unlikely to slip below 18000. The options data for the expiry and also for the coming month-end expiry hints at Nifty staying between 18000-18500 levels. We recommend continuing to stay highly stock-specific and avoid aggressive shorts. Profits on either side should be vigilantly protected while keeping leveraged exposures at modest 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)