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Thursday Trade Setup: Options Data Shows NIFTY Dragging Resistance Lower; This Zone May Become A Temporary Top

Finally, the confluence area of two major pattern resistance point proved stiff for the markets as the NIFTY saw some serious unwinding from higher levels after facing resistance near that area for three day. The NIFTY saw a quiet start to the day on anticipated lines; it traded sideways in a defined range without any directional bias for the entire day. It was the last hour of the trade with saw NIFTY giving up and seeing some unwinding of positions. The NIFTY came off over 150 points, and the Banknifty came off over 550 points from its high point. The headline index finally ended with a net loss of 93.90 points (-0.87%).

Thursday will have weekly options expiry playing out as well. Presently, the levels of 11000 continues to have highest Call OI concentration followed by 10800. This resistance points are likely to shift lower as the 10700 and 10800 strikes have witnessed significant call writing during the day. Given this setup, the opening levels of the Index will be crucial to watch. First time over the past several days, volatility surged, as INDIAVIX rose by 3.97% to 26.1000.

Thursday is likely to see a soft start to the day. The levels of 10765 and 10820 will act as resistance points. The supports will come in at 10610 and 10515 levels.

The Relative Strength Index (RSI) on the daily chart is 67.40; it stays neutral and does not show any divergence against the price. The RSI has crossed below 70 from an overbought zone and this is bearish. The daily MACD is bullish as it trades above its signal line. An Engulfing Bearish Candle has emerged. The occurrence of such a candle after the formation of a Doji on the previous day is not a good sign. Such a formation can temporarily disrupt the present trend as the appearance of such a candle just below the important resistance zone and following two weak candles makes the current candle all the more potent.

All in all, the NIFTY appears to have made a temporary top in the 10800-10850 zone, and this has happened on the expected lines. No sustainable up move shall occur unless the index moves past the 10800-10850 zones convincingly. On top of everything, the 200-DMA, which presently stands at 10884 remains a major resistance at close.

We recommend avoiding any fresh long positions in the event of any short covering, if at all it occurs, Purchases, if any, should be kept highly stock specific and limited. There are high possibilities that all up moves, if they occur, shall get sold into at higher levels. NIFTY stays highly vulnerable at higher levels in the present technical setup. A cautious view 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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