Nifty’s behaviour against 14,800 level crucial; defensives to show strong performance

While continuing to stay in a downward channel, the Indian equities extended their up move to end the day with gains. The Nifty saw a stable start on the expected lines. After opening on a positive note, the market built some gains in the morning session. The index got stronger as the day progressed. The Nifty marked its intraday high point in the afternoon trade. The markets managed to maintain gains until the end, though it did come off its highs modestly by the time the session ended. Finally, the headline index closed the day with net gains of 135.55 points (+0.92%).

Thursday’s session will find itself being influenced by more than one factor. The weekly expiry is likely to affect the trade; the 15,000 strikes hold the maximum Call OI followed by 14,800 levels. The 14,800-point also coincides with an upper trend line of the falling channel that the markets are trading in. Any sustained move beyond 14,800 level will see the Nifty attempting to break out of this falling channel. Importantly, the Nifty has again attempted to move past the 50-DMA, which presently stands at 14,794. Therefore, the opening levels, and the behavior of the Nifty against the 14,800 level will be crucial to watch.

Volatility declined as the India VIX came off modestly by 2.84% to 20.2475. Thursday is likely to see the levels of 14,860 and 14,980 acting as resistance points; support will come in at 14,770 and 14,680 levels. Given the weekly options expiry, some wide ranged moves cannot be ruled out.

The Relative Strength Index (RSI) on the daily chart is 51.39. It has been staying neutral and is not showing any divergence against the price. The daily MACD has shown a positive crossover. It is now bullish and trades above the signal line.

The pattern analysis shows that the Nifty is trying to not only move past the 50-DMA, but also from the falling channel that it has formed over the past couple of weeks. If the Nifty is able to move past 14,800 and sustain above that, it will drag its short-term supports higher.

All in all, the Nifty is showing some strength. The weekly options expiry and the options data shows a significant amount of Put writing at lower levels and some large amount of call writing at 14,800 levels as well. This makes the Nifty’s behavior against this point crucial to watch. It is recommended to not chase any up moves blindly. All moves on the upside should be followed in a highly selective way. The defensive stocks are likely to show strong relative performance against the broader markets. While staying highly selective, a cautious approach is advised as some consolidation cannot be ruled out 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.