Trade Setup: Approach market in defensive mode, curtail overall exposure

The Nifty continued to exhibit corrective bias on the last trading day of the week. However, it did manage to end the on a positive note. The markets opened on a positive note, but the morning session soon saw the index drifting in the negative territory where it marked its low point of the day. The remainder of the session saw the markets recovering from that low point. It gradually crawled inside the positive territory. In the end, the NIFTY ended the day with a net gain of 42.20 points (+0.27%).

Though a positive start is likely on Monday, the markets have continued showing classical distribution signs. The options data shows the zone of 15850-15900 having maximum Call OI accumulation making it key resistance zone for the markets. The volatility also refused to pick up. INDIA VIX slipped another 5.84% to 12.0900 and is approaching its lifetime low levels if the present trend continues. The behaviour of Nifty against the price levels of 15850-15900 is now extremely crucial. The longer the Index stays below this, the higher it will remain to profit taking bouts from higher levels.

Monday is likely to see a modestly positive start to the day. The levels of 15830 and 15890 will act as resistance. The supports come in at 15650 and 15540. The Relative Strength Index stands at 56.22; it remains neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line.

A spinning top occurred on the candles. Spinning tops are the result of sessions with little intraday trading range. They show lack of directional consensus among the market participants.

Regardless of any positive moves that we may see on Nifty or any intermittent rallies that are observed in the markets, the index will be prone to corrective moves as long as it is below the 15850-15900 zones. Unless the Nifty moves past this level convincingly, no meaningful upsides are likely to occur. We recommend continuing to approach the markets in the defensive mode while keeping overall exposures curtailed and limited.

(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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