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  • Milan Vaishnav, CMT, MSTA

Thursday Trade Setup: Weekly Options Expiry May Infuse Volatility; Holding This Level At Close Imp

In what can be called a disappointing day, the markets failed to capitalize on a strong opening it got while ending the day on a flat note. It was a wide-ranging session wherein the NIFTY moved within a 175-point range. After a positive start to the day, the NIFTY got stronger in the early morning trade. However, a profit-taking moves put the index in a falling trajectory. The markets kept losing ground steadily, and the NIFTY erased all its gains while dipping below the 50-DMA level. However, the index rebounded 75-points from its lows and finally settled the day virtually unchanged with a loss of 0.05 points.

From the technical perspective, NIFTY has defended the level of 50-DMA on a closing basis despite breaching this level intra-day. So long as this level stands protected on a closing basis, markets still have some possibilities to attempt a technical pullback as it trades mildly oversold on short term charts. We have an expiry of weekly options, and that will play out as well on Thursday’s trade.

Markets are also likely to react to the FOMC meeting outcome that is slated to come later in the night on Wednesday. Though no one seriously expects any rate cut, the commentary will be closely watched. However, this is most likely to remain a non-event beyond a point.

Thursday is likely to see the levels of 11745 and 11810 acting as stiff resistance points. Supports come in at 11650 and 11580.

The RSI on the daily chart stands at 46.2324; it remains neutral and does not show any divergence against the price. The RSI is seen taking support on a trend-line that joined lower tops earlier. The daily MACD is bearish, and it trades below its signal line. No vital formation is seen on candles.

The pattern analysis shows that after having slipped below the short term 20-DMA, the NIFTY is attempting to take support at its 50-DMA, which is presently at 11681.

The expiry of weekly options might infuse some volatility in the trade. The options data show an unclear picture as highest Put OI is seen at 11700 strikes while the NIFTY has ended few points below this. If the NIFTY manages to stay above 11700 levels, this level may become support during the day. On the other hand, the index has high Call OI built up at 10750 and 10800 strikes.

We recommend using downsides in making select purchases, though in very modest quantities. Despite the possibilities of a pullback, the NIFTY continues to remain prone to profit taking moves from higher levels. While refraining from taking any aggressive bets on either side, a cautious view should be maintained for the day.

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