Trade setup: Nifty has key support at 14,500 and 14,440 levels; avoid high leveraged positions

For the third day in a row, the Nifty took support at the 100-DMA and bounced off from that level while staging a technical pullback. The markets opened on a positive note and spent the morning session in a rangebound manner. The second half of the trading session saw the Nifty getting stronger. The intraday low point again remained very near to the 100-DMA levels. Though the index did not take any directional cue and stayed within its congestion range, it still managed to end the day with net gains of 121.35 points, up 0.84 per cent.

Nifty continues to hang in a precarious way. It not only stays within the falling channel that formed after the formation of the high point at 15,431, but it has also formed a congestion zone between the 50-DMA and the 100-DMA, which currently stand at 14,740 and 14,499 levels. This makes the zone of 14,499-14,750 a congestion zone for the Nifty. So long as the index is within this zone, it will refuse to make any major directional move on either side. The volatility declined as the India VIX came off by 4.55% to 21.9625.

Nifty’s PCR across all expiry stands at 1.05. Also, as we are approaching the weekly options expiry, the market trend will be dominated by this. The strike of 14,500 saw large unwinding of Call OI, whereas 14,600 saw large addition of Put OI. If there is no tactical change in the market conditions, 14,500 is expected to act as a support.

Thursday is likely to see a quiet start to the day. The levels of 14,650 and 14,720 are expected to act as resistance points; the supports will come in at 14,500 and 14,440 levels.

The Relative Strength Index (RSI) on the daily chart is 49.58. It stands neutral and does not show any divergence against the price. The daily MACD is bullish and above its signal line. A Spinning Top emerged on the candles. This continues to denote indecisiveness among the market participants.

From the pattern analysis, it appears that the Nifty not only stays within the falling channel and within the congestion zone within the 50-, and 100-DMA, it also appears that while the 100-DMA is still rising, the 50-DMA is gradually declining. This shows that there is a short-term loss of momentum in the market.

We recommend not chasing any pullback as the current up move has come on account of short covering. This was evident as it came with decline in Nifty Futures open interest. All in all, the markets have turned highly stock-specific in its texture and it is likely to remain this way for some time. We recommend avoiding any high leveraged positions unless the Nifty takes any directional cue on either side and moves out of the current congestion zone. A cautious 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