Trade Setup: Critical for Nifty to hold above 14,800; stay highly selective on purchases

In a volatile but range-bound trading day, the domestic equity market extended its technical pullback and ended the day on a positive note while it also moved past few important levels.

Following a capped morning trade, headline index Nifty pared its opening loss to slip briefly in the negative territory. However, the second half of the session saw good recovery from the intraday low point. The index rebounded over 100 points from the morning lows. Though the index came off from its peak, it ended the day on a positive note with a gain of 78.35 points or 0.53 per cent.

We enter the penultimate day of expiry of the current derivative series. The coming two sessions will stay dominated with rollover centric moves. As we also head into weekly options expiry, Nifty will also be influenced by this. From a technical perspective, the index has crawled back above the extended trend line resistance near 14,800 level.

Importantly, it has also managed to penetrate its 50-DMA which was acting as a resistance point on a closing basis. The 50-DMA stood at 14,769 and will stay as an important level to watch on a closing basis.

Wednesday’s session is likely to have a stable start to the day. The levels of 14,865 and 14,945 will act as likely resistance points for Nifty, while support will come in at 14,780 and 14,735 levels.

The Relative Strength Index (RSI) on the daily chart stood neutral at 49.27 and did not show any divergence against price. The daily MACD was bearish and remained below its Signal Line. A white body appeared on the charts. Apart from this, no other formations were noticed on the charts.

The pattern analysis shows that the index has been able to crawl back above the extended trend line resistance shown on the charts. It has also penetrated its 50-DMA at 14,769. It would be crucial for the index to stay above that level to avoid any lasting weakness in the near-term.

Looking at the weekly options data, 14,800 strike added lot of fresh Open Interest. Out of the total 2.6 million Call OI at this level, 1.6 million got added today. Although the maximum Call OI stood at 14,500, the index is trying hard to drag its support level higher. If we combine this statistical reading along with the pattern analysis, it becomes important that staying above 50-DMA and 14,800 levels will be of critical importance for Nifty in the immediate near-term. We reiterate avoiding aggressive shorts and making purchases on a highly selective note. While avoiding highly leveraged exposures, vigilant protection of profits is advised 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)