Nifty: Trade Setup: Nifty may open on the higher side, take out key resistance

In a very measured move, Nifty moved in a defined range before ending Wednesday’s session with a modest gain as the weekly options expired. The market saw a gap-up start once again, but Nifty formed an intraday high in the early minutes of the session. After that, Nifty gradually pared most of the gains by afternoon. In the second half, the market saw some recovery, but Nifty moved in a defined range and the upside remained capped. With no major directional move on any side, the headline index finally ended the session with a gain of 76.40 points, or 0.51 per cent.

The expiry of weekly options controlled bulk of the index movement during the session. Maximum Call open interest stood at strike price 15,200, which prevented Nifty from moving past this point.

On Friday, the market will open after a day’s gap as Thursday was a trading holiday. Nifty will adjusting itself to the global trade setup in the opening trade. In most likelihood, the marker will see a positive start and extend the gains. Volatility has cooled off some bit, as INDIA VIX has come off 7.77 per cent to 20.7472.

In the previous note, we had mentioned about Nifty testing the short-term falling trend line marked in the red. On Friday, it may open well above that. The 15,230 and 15,315 levels are likely to act as probable resistance points for Nifty in Friday’s session, while support will come in at 15,110 and 15,060 levels.

The Relative Strength Index (RSI) stood at 57.22 level; it remains neutral and does not show any divergence against price. The RSI is also seen forming a neutral Symmetrical Triangle pattern, the resolution of which may give us useful directional cues going ahead from here.

Pattern analysis showed Nifty has formed a lower top at 15,273 level after the high point at 15,431. A Falling Trend Line can be drawn from the highest point, which subsequently joins the lower high level. The index tested this trend line in the previous session and closed just a notch below this. If Friday’s session sees an opening on the higher side, Nifty may well take out this pattern resistance and post some incremental gains.

All and all, it would be prudent not to rule out a move on either side on Friday despite increased possibility of a stronger opening. It is recommended to avoid shorts in the first place. When it comes to following the uptrend, it should still be done in a selective manner. It would be wise to stick to low-beta stocks; and while chasing high momentum stocks, leveraged exposure should be kept at modest levels. A cautiously positive outlook is advised for the day.

(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)