Trade setup: Nifty lacks internal strength; chase up moves cautiously

The Indian equity market saw its regular weekly options expiry and also the expiry of the monthly derivative series. The process remained less volatile than expected. The Nifty traded in a defined range and within the levels indicated by the weekly options data.

While the index maintained its gains, no directional cue was seen during the entire session as the Nifty dipped twice in the red only to recover later. The benchmark index ended the day positing modest gains of 36.40 points or 0.24 per cent.

The session stayed dominated and influenced by rollovers as expected. The weekly options expiry also guided the index trajectory for the day. The maximum Open Interest accumulation that was at 15,500 level had gradually shifted lower to 15,350. This level also saw maximum Call writing happening during the day.

All these factors prevented the Nifty from moving past this level on a closing basis. Volatility decreased as the India VIX came off by 4.61 per cent to 19.91. Markets are trading very near to its high point with consistently low levels of VIX, which is a sign of concern in the near term.

Markets are likely to see a positive opening on Friday and may attempt to go close to its previous lifetime high point of 15,431. The levels of 15,380 and 15,430 will act as resistance points; the supports will come in at 15,250 and 15,210 levels.

The Relative Strength Index (RSI) on the daily chart is 64.01; it shows a bearish divergence against the price. While the Nifty marked a new 14-period high, the RSI did not, and this resulted in a bearish divergence. The daily MACD is bullish and remains above the signal line.


The pattern analysis shows that the breakout that Nifty attempted from the falling channel is very much in place. The index may continue attempting to test higher levels with the zone of 15,000-15,200 acting as strong support zone for the immediate short term.

Despite strong undercurrents and the possibilities of Nifty testing its previous high levels again, there are two things that traders or investors cannot and should not take their eyes off. First, Nifty is lacking the show of internal strength in the incremental up moves that it has been making in the previous couple of sessions. Second, the VIX is continuously at one of its lowest levels seen in the recent month. This technical setup has the potential for the volatility to spike up in the immediate near term. Also, we need to remember that as of now, Nifty may attempt to move past the previous high, but it has not actually done so at present.

In the given technical setup, we recommend continuing to guard profits so long as Nifty does not achieve a breakout from the previous high point of 15,431 convincingly. The longer the index remains below this point now, higher will be the chances of the market seeing minor corrective moves. While staying selective for the new purchases, a cautiously positive outlook is advised for the day.

Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected]

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