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Thursday Trade Setup: Weekly Options Expiry Shows NIFTY Evenly Placed; Sustaining Above This Point Crucial

While continuing to stay in a downward channel, the Indian equities extended their up move to end the day with gains. The NIFTY saw a stable start on the expected lines. After opening positive, the markets build some gains in the morning session. The index got stronger as the day progressed, and the NIFTY marked its intraday high point in the afternoon trade. The markets managed to maintain gains for until the end, though it did come off its highs modestly by the time the session ended. Finally, the headline index closed the day with net gains of 135.55 points (+0.92%).

Thursday’s session will find itself being influenced by more than one factors. The weekly expiry is likely to affect the trade; the 15000 strikes hold the maximum Call OI followed by 14800 levels. The 14800 point also coincides with a upper trend line of the falling channel that the markets are trading in. Any sustained move beyond 14800 level will see the NIFTY attempting to break out of this falling channel. Importantly, the NIFTY has again attempted to move past the 50-DMA which presently stands at 14794. Therefore, the opening levels, and the behavior of the NIFTY against the 14800 level will be crucial to watch.

Volatility declined as the INDIAVIX came off modestly by 2.84% to 20.2475. Thursday is likely to see the levels of 14860 and 14980 acting as resistance points; supports come in at 14770 and 14680 levels. Given the weekly options expiry, some wide ranged moves cannot be ruled out.

The Relative Strength Index (RSI) on the daily chart is 51.39; it stays neutral and does not show any divergence against the price.  The daily MACD has shown a positive crossover; it is now bullish and trades above the signal line.

The pattern analysis shows that the NIFTY is trying to not only move past the 50-DMA, but also from the falling channel that it has formed over the past couple of weeks. If the NIFTY is able to move past 14800 and sustain above that, it will drag its short-term supports higher.

All in all, the NIFTY is showing some strength; the weekly options expiry and the options data shows significant amount of put writing at lower levels and some large amount of call writing at 14800 levels as well. This makes the NIFTY’s behavior against this point crucial to watch. It is recommend not chasing any up moves blindly; all moves on the upside should be followed in a highly selective way. The defensive stocks are likely to show strong relative performance against the broader markets. While staying highly selective, a cautious approach is advised as some consolidation cannot be ruled out 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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