Trade Setup: Nifty drags its support higher, MACD shows directional consensus

The domestic equity market continued to solidly outperform its global peers; and Nifty and Sensex once again surged and ended at new lifetime highs on Wednesday.

Nifty saw a stable start to the day, marked its day’s low point in the opening minutes and thereafter never went into the negative territory even once. The entire session saw Nifty inch higher steadily, marking incremental highs. It managed to move past the 17,500 mark and stay above it as well. At the end, the headline index ended with a net gain of 139.45 points, or 0.80 per cent.

As we head for the weekly options expiry on Thursday, there was massive Put writing at strike prices 17,400 and 17,500 levels. The 17,500 strike saw addition of 5.2 million OI. The 17400 level, on the other side, had the highest accumulation of Put Open Interest. This suggests Niftu has dragged its support levels considerably higher. The highest Call OI stood at 17,500 followed by 17,600 levels. This makes the 17,500 level an inflection point for Nifty. If Nifty stays above it for long, we may see some incremental move on the upside.

India VIX edged higher by 1.14 per cent to 13.7300. Thursday’s session is likely to see the 17,565 and 17,630 levels act as immediate resistance points, while support will come in at 17,400 and 17,365 levels.

The Relative Strength Index (RSI) on the daily chart stood at 83.86; it showed negligible negative divergence against the price. However, such divergences tend to get corrected.

The daily MACD remained bullish and was above the Signal Line. A strong white body emerged on the candle, and this reflected the directional consensus among market participants on the upside.

Pattern analysis showed Nifty is creating basing points after each bounce; consolidates at that basing point as a support before resuming the upmove.

This time as well, Nifty has resumed its upmove after six days of sideways consolidation. As mentioned in the previous note, it was expected that some stock-specific performance may be seen in the laggaing sectors like Auto, Banks, etc. Such action was visible in the previous session as well.

The overall fabric of the market is likely to remain stock-specific in the coming few days. We recommend avoiding shorts as long as Nifty stays above its most recent basing point, i.e., 17,400 level. While staying highly selective in picking stocks, one may chase the momentum on the upside. The 17,500 level is likely to to act as an inflection point for Nifty. If the index does not stay above the 17,500 level, some rangebound consolidation cannot be ruled out from current levels.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of and and is based at Vadodara. He can be reached at [email protected])

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