Nifty: Trade Setup: Nifty showing clear signs of fatigue; avoid leveraged purchases

The day ahead of the expiry of June derivative series saw the market go into corrective mode: Nifty started well, but ended up with a cut. The index opened on a positive note, but marked its high point in the early minutes of the trade. After that, the index saw a gradual decline through the day, as it not only pared the gains, but also slipped into the negative territory.

Barring one feeble attempt to recover in the afternoon, Nifty stayed weak and close its low point. The index ended the day with a net loss of 85.80 points, or 0.54 per cent.

Wednesday’s session saw significant Call writing at strike price 15,900. This indicates very less possibility of Nifty moving past this point. The 15,800 level also holds maximum concentration of Call Open Interest. Apart from this, Put unwinding was also seen at strike price 15,800. If Nifty stays below 15,700 level, there are greater chances of it getting weaker. The highest Put OI stood at 15,500 level. Volatility increased; INDIA VIX rose by 4.26% to 15,365.

However, this level is still not so high and very near to the lows witnessed in the early 2021. The market may see a soft start to the day. The 15,750 and 15,785 levels are likely to act as key resistance, while supports may come in lower at 15,600 and 15,510 levels. The Relative Strength Index, or RSI, on the daily chart stood at 58.65. It has marked a new 14-period low, which is a bearish signal. However, the RSI is neutral and does not show any divergence against the price. The daily MACD remains bearish and is below the signal line.

A large black body has emerged. The occurrence of such large bearish candle near the high point reinforces the 15,850-15,900 zone as a major resistance for Nifty going ahead in the near term. All and all, the market is showing clear signs of fatigue at current levels. Short covering seen so far was more of a classical distribution.
Given the current technical setup, as long as Nifty stays below the 15,850-15,900 zone, it will stay highly vulnerable to bouts of profit taking. In other words, for any sustainable rise to happen, Nifty will have to move past this zone.

We recommend avoiding aggressive leveraged purchases at this stage. While keeping new buying highly limited, we strongly recommend using every rise to vigilantly protect profits at higher levels.

(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)