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Thursday Trade Setup: Expiry To Dominate The Trend; Pattern Analysis Shows Loss Of Internal Strength

After opening positive and trading on a stronger note in the first half, the markets took a turn on the corrective side in the afternoon trade. The stronger opening saw the NIFTY opening right in the resistance zone. The NIFTY oscillated in a defined range in a sideways move while occasionally slipping into the red for a brief time. However, the second half of the session saw the markets facing a strong corrective move from higher level. The corrective move caused the NIFTY to come off over 270 points from its high point. After a steep knock, the headline index ended the day with a cut of 165.70 points (-1.58%).


This Thursday has weekly options expiry as well as the expiry of the current derivative series as well. The rollovers will continue to dominate the trend for the next trading session. The options data shows that the level of 10500 continues to maximum Call OI concentration. In the event of any negative opening, there are possibilities that this resistance point shifts lower. Volatility also increased marginally as the India Volatility Index, INDIAVIX, rose by 0.81% to 29.5775.

 
Thursday is likely to see a soft start to the day. The levels of 10350 and 10395 acting as overhead resistance point. The supports come in at 10210 and 10165 levels. Any extension of the corrective move is likely to make the trading range wider.
 
The Relative Strength Index (RSI) on the daily chart is 62.52; it stays neutral over the 14-day period but shows a distinct negative divergence against the price if we subject it to a pattern analysis. The daily MACD is bullish as it trades above its signal line.
 
An engulfing bearish candle emerged. The appearance of such a candle during an up move and below the resistance point makes it potent enough to mark a potential exhaustion of the current up move.
 
The pattern analysis shows that the while the NIFTY was marking a higher top, the RSI did not do so. The RSI, being a lead indicator, has shown a distinct bearish divergence. Secondly, occurrence of a engulfing bearish candle even before the Index reaches the upper trend line of the channel makes it bearish until it reverses to correct this move.
 
All in all, even if there are expiry led moves on the upside fueled by short-covering, we strongly reiterate to stay away from chasing any upward momentum unless the NIFTY moves past the previous high level on the daily chart. The Index will continue facing selling pressure at higher levels. While avoiding aggressive bets and staying light on overall exposure, cautious approach is advised for the day.

Milan Vaishnav, CMT, MSTA
Consulting Technical   Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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