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Gemstone Equity Research & Advisory Services

Thursday Trade Setup: NIFTY Potentially Marks A Temporary Top; Keep Purchases Limited To This Space

What that was long overdue, happened in Wednesday’s trade. The NIFTY, that was seeing incremental highs with declining strength got its first taste of violent profit taking during the day. The NIFTY had seen decent start to the day. The markets opened on a modestly positive note and maintained decent gains until the afternoon by trading in a sideways trajectory. However, the second half of the session saw a very sharp corrective move; it caused the NIFTY to give up nearly 250-odd points from the high point of the day. Some recovery happened in the final hour of the session. The headline index closed the day with a net loss of 104.75 points (-0.67%).

 

We have weekly options expiry coming up; the strikes of 15700 and 15800 saw heavy Call writing during the day. The level of 15800 has a maximum concentration of Call OI built up followed by 15700. The 15700 also saw heavy unwinding of the PUT OI. All this indicate that the NIFTY is unlikely to move past 15700 in the next session and this point will pose formidable resistance to the markets. The volatility slid below the 15-mark; the INDIAVIX declined by 3.10% to 14.7525 to its lowest levels in the last 18 months.

Thursday is likely to see the levels of 15700 and 15745 acting as resistance points. The supports come in at        15600 and 15500 levels.

The Relative Strength Index (RSI) on the daily chart is 65.56; it has crossed below 70 from an overbought zone which is bearish. RSI, however, is neutral and does not show any divergence against the price. The daily MACD is bullish and remains above the signal line. A large black candle emerged. This marks the 15800 point as an intermediate top for the markets until taken out.

The pattern analysis of the daily chart shows that the NIFTY has shown a large bar after many small bars; small bars mean trading sessions with very less intraday range. This has occurred after small incremental up moves from 15750-15800 zone; this makes this zone a stiff resistance area for the markets in the immediate short-term.

The market breadth had been week over the past few days; it remained particularly weak in the previous session with 39 stocks out of 50 declining in NIFTY index. The VIX is precariously close to its lowest levels; even the present levels are the one of the lowest during the recent times. Even if some mild pullback occurs, we strongly recommend staying away from making fresh purchases in the high beta stocks. New purchases, if any, should be kept strictly in the defensive space. The volatility may increase going ahead and the NIFTY showing some more corrective moves cannot be ruled out. A cautious view is advised for the day.

This was first published by The Economic Times.

Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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