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Thursday Trade Setup: Weekly Options Expiry To Dictate Levels For NIFTY; Continue To Adopt Stock-Specific Approach

Fueled by a spurt in the broader markets consisting midcap stocks and the extension of rally in the financial group, the Indian benchmark NIFTY extended its gains to end at a fresh high point. The markets saw a soft opening on expected lines and after trading in a limited range, marked its low point in the morning trade. After that, the index moved in sideways trajectory for the most part of the day. Just when it seemed that the markets are showing some kind of a corrective move, the short covering emerged in the last hour and a half of trade. The NIFTY rebounded over 100-points from the low point. The maintaining levels near its high point, the headline index ended the day with 64.05 points (+0.50%)

The surge that was seen in the last hour and half was due to short covering from lower levels.  This was evident as the premium in the NIFTY futures increased and the up move has come with a net reduction of Open Interest in the futures. We have weekly expiry coming up. As of now, despite the surge, the levels of 13000 has continued to see a highest accumulation of Call Open Interest. Unless this level is taken out convincingly, NIFTY is overdue to take some breather near this point. However, any forceful move beyond the 13000 level will bring some incremental upsides; however, this seems unlikely.

Thursday will see the levels of 13000 and 13030 acting as resistance points. Supports come in much lower at 12860 and 12730 levels.

The Relative Strength Index (RSI) on the daily chart is 78.66 ; it has made a fresh 14-period high which is bullish. RSI is neutral and does not show any divergence against the price. The daily MACD is bullish and it remains above the signal line.

A bullish engulfing candle has occurred. However, it is crucially important to note that this is cannot be considered as a valid bullish engulfing as it has occurred during a steep uptrend. On the contrary, it can act as a potential reversal point and may point towards a formation of a temporary top. This will need confirmation on the following day.

All in all, markets continued to be fueled by liquidity, but in the process, it has got highly overstretched. We reiterate the need to continue approaching the markets with utmost caution. This is definitely not the time to make any fresh entry in high beta and other financial stocks. While continuing to keep fresh purchase limited to defensives, a tight protection profit at current levels is advised.

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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