Nifty: Trade Setup: Large Call writing at 17,800, highest Call OI at 18,000 signal Nifty consolidation ahead

Wednesday was a day of positive consolidation for Nifty again. The domestic market had a negative start to the session. Nifty opened lower in line with the prevailing global trade setup. Following a weak start, the index drifted lower right from the opening bell to form a low point for the session in the early minutes of the trade.

After that, the index immediately became stable and spent the entire session, recovering from its opening low point. However, the last 30 minutes of the session saw the market again slip into the negative region. The headline index finally settled with a modest loss of 37.30 points, or 0.21 per cent.

We head not only into weekly options expiry, but also monthly derivative expiry on Thursday. Given the current technical setup and looking at the options data for September expiry, it is unlikely that Nifty may see any serious drawdown. The expiry of September series F&O contracts has seen good amount of Put writing at the 17,600 and 17,650 levels. It is less likely that Nifty may slip below the 17,600 level, unless there is any large negative cue to deal with.

Though large Call writing was seen at the 17,800 level, the concentration of the highest Call Open Interest was seen at the 18,000 level. Volatility edged higher; India VIX rose 1.63 per cent to 18.8375. Thursday’s session may see the 17,800 and 17,865 levels are acting as immediate resistance points for Nifty, while supports come in at the 17,650 and 17,600 levels.

The Relative Strength Index (RSI) on the daily chart stood at 68.67. It has slipped below the 70 level from an overbought zone. The RSI has made a new 14-period low, which is a bearish signal. The daily MACD is bearish and below the Signal Line. An Inside Bar occurred on the charts. This happens when the session has a lower high and low.
All in all, the market continues to stay stock and sector specific. It will continue to stay this way for some more time. Nifty has most immediate resistance near the 17,800 level, and crossing that level will be a bullish sign. However, there are greater chances that Nifty will continue to remain under a broad, well-defined consolidation.

While Nifty consolidates, we will continue to witness sector-specific moves. It is largely expected that select banks, auto, auto ancillary, PSE and FMCG pockets perform resiliently under the current circumstances. 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 and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)