Thursday Trade Setup: Weekly Options Data Point Towards Capped Upside; Use Moves To Protect Profits
In the previous note, we had mentioned about a likely technical pullback happening in the markets. On the expected lines, the NIFTY put up a strong rebound from the support levels and ended on a healthy note. The NIFTY opened higher, and after a mild correction from the opening levels, it moved higher again. The index stayed in a steady upward rising trajectory and ended near the high point of the day. After a short-covering fueled up move, the headline index NIFTY ended with net gains of 133.40 points (+1.11%).
Thursday is a last trading day of the week as 21st February is a trading holiday on account of Mahashivratri. The up move that the markets saw has come solely on the back of short-covering as this is reflected in the F&O data which shows a reduction in the net OI along with the surge in the index levels. Thursday will also see weekly options expiry playing its part and this is likely to keep markets volatile. The 12200 has the highest concentration of Call OI while the 12100 and 12200 have near similar high levels of Put OI built up.
A stable start to the session is expected on Thursday. The levels of 12145 and 12195 will act as resistance, while supports will come in at 12050 and 12000 levels.
The Relative Strength Index (RSI) on the daily chart is 51.71; it stays neutral and does not show any divergence against the price. The daily MACD is bullish as it continues to trade above its signal line. Except for the small white body that emerged, no significant formations are seen on the Candles.
The pattern analysis of the daily chart shows that the NIFTY has managed to bounce off the 100-DMA level which presently stands at 11947. In the process, the index has also managed to move past the short-term 20-DMA, but it has halted its up move just below the 50-DMA level, which presently stands at 12139.
All in all, the level of 50-DMA, which is currently at 12139, can be continued to be seen as an important overhead resistance point on a closing basis. Just above that, the NIFTY also has a pattern resistance in the form of a falling trend line that joins the 12430 levels to a subsequent lower top. Given the current technical setup, the chances of some profit booking at either current or higher levels cannot be ruled out. Also, with Friday being a holiday, the market participants turning cautious towards the end of the session cannot be ruled out. We recommend continuing to use up moves to protect profits and keep positions at a modest level. A cautious view is advised for the day.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)