Gemstone Equity Research & Advisory Services

Thursday Trade Setup: NIFTY Needs To Stay Above This Point; Stays Prone To Bouts Despite Strong Undercurrents

The markets interrupted its unstoppable up move as it witnessed a heavy consolidation on the expected lines. The morning saw a smart and strong opening to the trade; this also saw the NIFTY testing an yet another life-time high point while it marked the high point for the day. However, the morning session saw the markets paring its opening gains and eventually trading flat. After trading flat near the previous close, the NIFTY witnessed a continued pressure of a profit taking bout which took the index even lower. However, the last hour and a half of the session saw an equally smart recovery from the low point. The NIFTY recovered over 125-points from its low to close flat with a negligible gain of 1.40 points (+0.01%).

For the second day in a row, the strikes of 14500 saw continued PUT writing activity. This has ensured that the NIFTY stays above this point. While this level has a maximum PUT OI, highest Call OI concentration remains at 14700 levels. Broadly speaking, the weekly options expiry will heavily influence the trend for the day; the NIFTY’s behavior against the levels of 14500 will be crucially important as the Index will have to keep its head above this point to avoid any major corrective weakness. The volatility modestly inched higher as the INDIAVIX climbed by 1.95% to 23.2925.

A quiet start to the day is likely on Thursday. The levels of 14610 and 14685 will act as resistance points. The supports will come in at 14500 and 14410.

The Relative Strength Index on the daily chart is 80.97; it has marked a new 14-period high but stays in the overbought territory. The daily MACD is bullish and trades above the signal line.

A candle with a long lower shadow occurred. Since this has occurred particularly at a high level, this may act as a potential disrupter of the trend. However, given the buoyant undercurrent, and in any case, no candle should be interpreted in isolation. This will need confirmation on the next trading day.

All in all, the NIFTY’s behavior against the price level of 14500 will be crucial; the index needs to stay above this to avoid any major weakness. The NIFTY PCR (all expiries) stands at a healthy 1.51 which is a good sign. As per the current technical setup, though the markets in general will continue to stay prone to profit taking bouts, all dips are likely to get bought into.

In the present scenario, we recommend attempting any major short positions unless the markets show indication of formation of a potential top. Until this happens, we recommend following the trend while strictly trailing stop-losses and protecting profits vigilantly at higher levels.

This was first published by The Economic Times.

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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