Trade Setup: Nifty likely to face immediate resistance at 15,720-15,775 levels

In a completely listless session, Dalal Street consolidated with a negative bias and ended with a modest loss on Thursday. The market saw a positive opening. It was in these early minutes of trade that the Nifty50 index marked its intraday high. After staying in positive territory briefly, the index soon slipped into the negative zone. The entire session was spent in a highly capped and defined range, and the market did not show any attempt to recover during the day. Following a session with saw gradual declines, the headline index ended with a net loss of 41.50 points (0.26 per cent).

The technical setup that has developed over the past several days has marked the level of 15,900 as a potential top for the market. The previous session saw heavy call writing since morning. Given the weekly options expiry day, the Nifty50 index settled below the 15700 level, which had the highest accumulation of the call open interest. Volatility continued to fall at precariously low levels. The India VIX index declined 1.57 per cent to 12.8400. This level unarguably remains one of the lowest seen in the recent past.

Friday is likely to see a tepid start to the day. Flaring crude prices and a strong US dollar are likely to dampen the sentiments. Nifty is likely to see the levels of 15,720 and 15,775 as immediate resistance. Supports come in lower at 15,600 and 15,505 levels.

The RSI on the daily chart is at 54.91. It made a fresh 14-period low, which is bearish. RSI is, however, neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line.

A black candle emerged. The opening and the high point at the same level defines weakness of the session and the directional consensus of the market participants behind it.

Pattern analysis shows that the 15,900 the has now become an intermediate top for the market. As long as the Nifty index stays below this level, it will either continue to consolidate in a broad range or see corrective moves. No meaningful rises are likely to occur as long as Nifty50 is below this point.

All in all, taking the current technical setup into consideration, all bounces, if they occur at all, will present an excellent opportunity to exit the current positions. A classical distribution is observed in the market, which is confirmed by the weak market breadth. Also, given the prolonged time that VIX has stayed at lower levels, there are increased chances of volatility spiking in the near term. We recommend staying away completely from the high beta and economy facing stocks. While maintaining a ultra-cautious approach, purchases should be kept moderate and limited to defensive stocks.


(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)