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Thursday Trade Setup: NIFTY Drags Resistance Point Lower; Expiry To Dominate The Moves

The vulnerability of the markets at higher levels resurfaced again as the NIFTY faced some corrective pressure once again at higher levels. The markets saw a modestly positive start to the day but soon slipped in the negative territory. It traded sideways within a capped range with limited losses until the early afternoon. However, the second half of the session saw the selling pressure getting intensified. The Index saw some sharp corrective moves, and in the process, ended with a net loss of 97.70 (-0.86%) after a modest recovery from the lower levels.

We have weekly options expiry as well as the expiry of the current derivative series on Thursday. Given the expiry day, the moves will be dominated with the rollover centric activities. In the previous session, the NIFTY has dragged its resistance lower from 11500 to 11300 levels which has the maximum concentration of CALL OI. In the event of any pullback, the 11300 level will act as a resistance unless the OI shifts higher. The volatility too increased a bit with INDIAVIX rising 1.99% to 24.1125.

Thursday may see the weakness getting extended. The levels of 11260 and 11320 will act as overhead resistance levels. The supports will come in at 11135 and 11040 levels.

The Relative Strength Index (RSI) on the daily chart is 67.02; it is neutral and does not show any divergence against the price. The RSI has slipped below 70 from being overbought and this is negative sign. The daily MACD is bullish as it trades above its signal line; however, the slope of the histogram suggests absence of any strong momentum in the moves. 

The pattern analysis shows the NIFTY trying to test the higher levels by moving towards the upper trend line of the rising channel. However, it is highly vulnerable to profit taking bouts at higher levels. This is also a clear bearish divergence of RSI against the price over the longer term as while the Index kept making incremental highs, the RSI did not do so.

All in all, with the markets portraying a tentative behavior at higher levels, we reiterate the need of protecting profits at higher levels and staying highly stock-specific while approaching the markets. Even a ranged consolidation or a mild corrective move can be sharp, and the possibility of the volatility increasing cannot be ruled out. While  staying light on the overall exposure, a 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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