Trade setup: No sectoral dominance seen ahead; avoid short positions

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On the much anticipated lines, equity markets took a breather after strong moves over several days and ended the day with losses. The session remained influenced by weekly options expiry and this dominated the intraday trend for the markets.

Following overnight weak global trade setup, Nifty opened gap down and kept marking gradual lows until the afternoon. It tried recovering from the low point of the day. However, no meaningful recovery was seen. The headline index ended the day with a net loss of 179.35 points (-1 per cent).

The maximum Call OI stood tall at 17,800 levels throughout the day. This ensured that despite the recovery, Nifty did not move past this level and settled below this point. Nifty had ended above the upper Bollinger band.

Thursday’s session has just pulled the index inside the band again. However, it still remains comfortably above all its key moving averages with major supports existing near 17,500 for the near term.

Over the coming days, as per the options data, Nifty will continue to find resistance at 18,000 levels. This means that some ranged consolidation in the markets is likely to continue which will be, in fact, healthy for the markets looking at the great run that it has had over the past days.

Friday is likely to see the levels of 17,800 and 17,865 acting as resistance points. Supports come in at 17,700 and 17,610 levels.

The Relative Strength Index (RSI) on the daily chart is 59.67. It remains neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line. A spinning top occurred on the candles. Such candles occur when there is little difference between the open and the close price for the day.

ETMarkets.com

The analysis for Friday remains on much similar lines. The markets have had a great runup in the form of a remarkable technical pullback. Given this fact, it should not come as a surprise to us if we see the markets undergoing some ranged consolidation in the immediate near-term. If Nifty consolidates, it will make the recent run-up more sustainable and healthy.

Also, as expected, there was no sectoral dominance seen in the markets. The coming session will also not see any particular sectoral dominance. The participants are likely to remain broad-based overall. We recommend avoiding to short the markets and use all such downsides that result out of consolidation moves to make select purchases while vigilantly protecting profits at higher levels.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)