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  • Milan Vaishnav, CMT, MSTA

Thursday Trade Setup: Weekly Options Data Indicate Volatile Day Ahead; Defending This Level Crucial

In an immensely volatile session of the trade, the headline index saw wild swings throughout the day to finally end the day on a negative note. The markets saw a soft opening on the expected lines and traded in a defined and capped range while hovering above and below the previous close level. After that, the markets continued to trade without any directional bias with limited losses. However, the afternoon trade saw the markets dealing with sever bear grip as the NIFTY slide below its critical levels of 11100. In the last hour of the trade, the NIFTY made a smart rebound of 160-points from the low point to trim the losses to just 52.30 points (-0.46%).

The analysis for Thursday stays on similar lines, except that the weekly rollovers are likely to dominate the session. Much on the anticipated lines, the NIFTY is seen violently consolidating in the greed shaded area while continuing to struggle to find a bottom for itself. As of now, it has stayed above the double bottom pattern support that exists in the 11050-11100 zones. We expect the markets to continue to consolidate with upsides remaining limited in its extent. The trading range is also unlikely to let volatility come down significantly, which had crossed above 26 at one point in time on Wednesday.

Thursday is likely to see a shaky start to the day with the levels of 11290 and 11315 acting as resistance points. The supports are expected to come in at 11190 and 11100 levels.

The Relative Strength Index (RSI) on the daily chart is 30.69; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and trades below its signal line. Apart from a black body that occurred, no other important formations were seen.

The pattern analysis shows that the NIFTY trades below all its key moving averages. As of now, it has respected the double bottom pattern support that exists in the 11050-11100 zones. It appears to be consolidating in a broad range with the base level of 11050-11100 acting as potential supports.

The options data shows the highest Call OI built-up at 11500 and maximum Put OI built up at 11000. This indicates that the market participants have kept enough room for expected volatility, which is omnipresent over the past couple of days. Not only for Thursday but the near-immediate term, the behavior of the NIFTY against the price level of 11100 will be crucial. Any slip below these levels will see markets getting incrementally weaker.

In the event of any technical pullback, they would stay capped on the upper side. Also, such pullbacks, if any, will continue to remain vulnerable to selloffs at higher levels. We recommend continuing to approach the markets on a cautious note.

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