Trade Setup: 18,500 is Nifty’s inflection point; stick to stock-specific purchases

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It was a yet another buoyant day for the Indian capital market; Nifty opened positive, inched higher and went on to close at a new lifetime high. The market saw a gap-up start for the third day in a row. The session, however, remained rangebound as the Index oscillated in a 100-point range throughout the day.

However, the market’s trajectory remained absolutely sideways; Nifty took no further intraday directional cue. The 50-pack ended with a net gain of 138 points or 0.76 per cent.

The market is now quite overextended and stretched on the charts and weekly options data present interesting insights. Monday’s session saw the highest Call writing at 18,500 level; this means majority of market participants on Monday’s session believed Nifty is unlikely to slip below this point. On the other hand, the 18,500 level also happened to hold maximum Call OI on a closing basis with the highest Put OI at 18,300. This means the 18,500 level will now act as an inflection point; if Nifty stays below it, then it is likely to slip into consolidation with the 18,300 level acting as a key support.

Volatility shot up; INDIA VIX surged 8.99 per cent to 17.1850.

Tuesday’s session is likely to see a quiet start. The 18,500 and 18,585 levels on the Nifty will act as resistance points, while support will come in at 18,400 and 18,365 levels.

ETMarkets.com

The Relative Strength Index (RSI) on the daily chart stood at 77.70 level; it remained overbought and continued to show a mild negative divergence against the price. The daily MACD remained bullish and traded above the Signal Line. A Spinning Top occurred on the candles. This happens when there is little price action during the day.

Such a formation at the high point holds the potential to halt the current uptrend and send the market into a ranged consolidation. However, any such thing would require confirmation on the next trading day.

All and all, Nifty’s internal strength remains intact. However, the charts are a bit overstretched and some consolidation at current or slightly higher levels cannot be ruled out. It would be crucial to watch Nifty’s behaviour against the 18,500 level; if the index stays below the 18,500 level for long, there are will be higher chances that it would slip into some consolidation, which is likely to be rangebound with limited downsides. We recommend sticking to stock-specific purchases and using all further rises to book and protect profits rather than making leveraged purchases. A cautious outlook is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at [email protected])



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