Trade Setup: Nifty faces strong resistance at 15,850-15,900 in immediate short term

The Indian equity market had a stronger opening as it went near its lifetime high only to retrace and end the day with a modest gain. The Nifty50 index saw a modest gap-up opening and got stronger as the day progressed. It marked its intraday high point in the morning session. However, the index encountered stiff resistance as it went near its previous lifetime high of 15,901. Following a gradual paring of gains for the rest of the day, Nifty50 wiped off almost all of its gains. The headline index finally settled with a modest gain of 26.25 points (0.17 per cent).

In the previous note, it was mentioned that the zone of 15,850-15,900 will act as stiff resistance for the market. While trading precisely on the expected lines, the Nifty50 index retraced from these levels. We step into the penultimate day of expiry of the current derivative series. The session is likely to stay impacted with rollover centric activities. Volatility continued to remain near its lowest point. India VIX came off 2.14 per cent to 14.7375. Unless the zone of 15,850-15,900 is taken out, the market will continue to face bouts of profit taking and resistance at higher levels.

Wednesday is likely to see the levels of 15,835 and 15,890 act as resistance points. Supports come in lower at 15,680 and 15,610 levels.

The Relative Strength Index (RSI) on the daily chart is at 63.96. It remains neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line. A Shooting Star emerged on the candle. This is not-so-classical shooting star as the upper shadow is not long enough. However, the current candle very closely resembles a classic shooting star. This was formed as the markets opened higher and got stronger, but came off from its high to end near the low point.

All in all, the current price action in the market has reinforced the zone of 15,850-15,900 as one of the major hurdles and strong resistance for the market in the immediate near term. This means that as long as Nifty50 is below this zone, it will continue to find selling pressure at higher levels. Further, any sustainable bounce shall happen only if the index manages to move past this zone convincingly.

As long as the Nifty index is below this zone, there are greater possibilities of a corrective move. Further, given the fact that volatility remains very close to its lowest levels in the recent past, there are higher chances that volatility also sees a spike going ahead. In any case, aggressive buying is not advised. While keeping over all exposures at modest levels, a continued cautious view is advised on the market.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)