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Thursday Trade Setup: NIFTY Near Key Resistance Point Again; These Signs Say Moves May Prove Deceptive

What seemed to be a day of correction, turned out to be a day of smart recovery as the markets recovered from the low point of the day to end with modest gains. On expected lines, the NIFTY saw a negative start to the day. After the markets opened negative, the index stayed in a sideways trajectory but also kept making incremental lows. After staying in a defined range with losses, the last hour and a half saw the markets recovering sharply from lower levels. The NIFTY pulled back over 160-points from the lows of the day and finally ended with a modest gain of 36.55 points (+0.31%).

Despite the markets showing a sharp surge, the pullback can be deceptive as it has come on the back of heavy short-covering as evident from the F&O data. Large call writing was seen at 11950 and 12000 strikes; the 12000 strike holds maximum Call OI followed by 12250. The level of 11800 has highest Put OI. The declined further as the INDIAVIX cooled off further by 2.43% to 20.2100. Given the weekly options expiry on Thursday, the behavior of the markets against the levels of 12000 would be crucial to watch.

Thursday is likely to see the levels of 12000 and 12065 acting as resistance points. The supports come in at 11910 and 11850 levels.

The Relative Strength Index (RSI) on the daily chart is 69.50; it stays neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line.

A candle with a long lower shadow occurred. It is a candle with a long lower shadow and not a classical Hammer as it has an upper wick which are supposed to be usually absent in a hammer. An occurrence of a candle with a long lower shadow following the formation of a Doji is a sign of caution that one must not neglect.

The pattern analysis suggests that after breaking above the 11400-11430 zones, the NIFTY has marked a temporary resistance point near 12000 levels. This level will continue to act as a strong resistance area unless this level is taken out comprehensively.  Going ahead from here, unless the NIFTY moves past the 12000-mark convincingly, it would be prudent to keep protecting profits at higher levels. While avoiding heavy purchases at higher levels, a cautious stock-specific 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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