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Thursday Trade Setup: Weekly Options Expiry To Dominate NIFTY; Some Fatigue Seen Because Of This

The breakout that happened above the 11400-11430 zone continued well as the markets kept piling on gains amidst a firm risk-on setup. Following stable start to the Asian trade, the Indian equities saw a quiet opening. However, after spending initial minutes in the negative zone and marking the low point of the day, the NIFTY crawled in the positive territory. After trading in a range in the morning session, the markets got stronger and kept marking incremental highs. The headline index ended the day well above the 11700 levels while posting net gains of 76.45 points (0.66%).

Although the NIFTY has kept on making incremental gains, there are some signs of fatigue at current levels. The market breadth also appears to be losing its strength with each subsequent up move and this is a sign of some tiredness in the markets. We have weekly options expiry coming up and this will guide the trend for the next trading session. The 11700-level saw maximum adding of Put open Interest. The 11800 Call holds maximum Open Interest, and this level may act as resistance tomorrow. The volatility index, INDIAVIX, ended higher by 2.16% to 20.0600.

Thursday is likely to see the levels of 11780 and 11825 acting as resistance points. The supports come in at 11670 and 11600 levels.

The Relative Strength Index (RSI) on the daily chart is 63.84; it stays neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above the signal line. A white body emerged on the candles; apart from this, no other important formations were noticed.

The pattern analysis of the daily chart shows that the NIFTY has not only taken out the double top resistance zone of 11400-11430 after the third attempt, it has also taken out the falling trend line pattern resistance. The falling trend line had started from 11800 and was joining the subsequent lower tops. As of now, the NIFTY has halted near the crucial resistance point of 11730-11800 levels.

All in all, some more incremental up move cannot be ruled out. However, that being said, the markets have now increased possibilities of some reactive moves from current and higher levels. The market breadth has got a bit weaker and some signs of fatigue is seen at current levels. Any up move from now on is likely to meet with profit taking bouts at higher levels.

Given the present technical setup, we recommend avoiding high-beta play and a blind chase of momentum on the upside. There are higher chances of moves meeting with profit taking bouts and therefore sticking to defensives like consumption, pharma, etc., would not only be a prudent approach, but would also offer a better risk-reward perspective as well.

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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