Gemstone Equity Research & Advisory Services

Friday Trade Setup: Complacency At Higher Level A Concerning Factor For NIFTY; This Zone Stays Crucial

In a thoroughly structured session, the Indian equity markets headed nowhere and ended the day flat with negligible loss. In the previous note, we had pointed out that large amount of both Call and Put writing was seen at 11300 strikes. This continued on the weekly options expiry day as well and this ensured that the NIFTY did not go anywhere from this point. After enjoying a positive start to the day, the NIFTY gave up all its opening gains after first two hours in the session. Thereafter, the rest of the time was spent trading in a capped range. The headline index ended with a minor loss of 7.95 points (-0.07%).

With the markets heading nowhere, the analysis for Friday remains on the similar lines. The NIFTY has not been able to penetrate the zone of 11300-11350 on last several occasions and this is a cause of concern. The markets have been lacking a directional bias over the past several days. Accompanied with such a sideways and direction-less move, the volatility has been falling. The IndiaVix further declined by another 1.33% to 20.5675 and this does not paint a pretty picture.

Friday is again likely to see a tepid start to the day. The levels of 11345 and 11380 will act as resistance point. The supports will come in at 11235 and 11180 levels.

The Relative Strength Index (RSI) on the daily chart is 64.56; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and it trades below the signal line. A Spinning Top occurred on the candles. The frequency of occurrence of spinning tops is also a cause of worry; such sessions denote a little price difference between the open and the close. Such candles are formed when there is indecisive behavior among the market participants.

The banking and financial services stocks are likely to remain resilient. Along with this, some stock-specific outperformance may also be seen from the midcap universe. 

Even when the markets are more or less sideways, the volatility has been on a constant decline. At present, it stays at one of its lowest levels of the recent times. This remains a concerning factor as low volatility reflect complacency of the market participants and may often lead to some corrective moves. We recommend continuing to pick stocks very carefully. It is suggested no getting aggressive while building longs until the NIFTY moves past the 11300-11350 zone convincingly on a closing basis.

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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