Trade setup: Indices may take a breather; Nifty to trade in 17,800-18,000 range

The Indian equity market continued its unabated up move for the fourth day in a row; went on to end yet another day with gains.

Nifty opened on a flat note and spent the morning session trading around its previous close levels. Market headed nowhere and traded sideways in defined trade.

It was from afternoon that the market started to gather strength. It went on to add incremental gains for the remainder of the session. Nifty maintained its levels until the end of the session; it closed net gains of 120 points (+0.67%).

We enter the weekly options expiry on Thursday. The previous session showed heavy Put writing at 17,800 and 17,900 levels. On the other hand, the highest Call OI stands at 18,000 levels. This indicates that Nifty is likely to see resistance at 18,000 on the upside, thus leaving its up move capped for Thursday.

The most likely trading range for Nifty on Thursday is likely to be 17,800-18,000. This also means that it is time for the markets to take some breather after almost 1,500-points of technical pullback from the most immediate low point seen in December 2021.

Thursday is likely to see the levels of 17,980 and 18,030 acting as immediate resistance levels. Supports come in at 17,860 and 17,800 levels. The Relative Strength Index (RSI) on the daily chart is 65.47; it has again marked a new 14-period high which is bullish.

milan5.1ETMarkets.com

However, it remains neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line. Pattern analysis shows that the markets formed its most immediate low point in December 2021; however, that had come with a strong bullish divergence of the RSI against the price.

While the price had marked a sharply lower low, the RSI did not do so and it led to emergence of a bullish divergence of the RSI. Since then, Nifty has seen a remarkable technical pullback of over 1,500-odd points from that low point of 16,410. In the process, it has also managed to crawl back above all its key moving averages.

The risk-on setup was evident as not only the banking and financial stocks outperformed, but the outperforming stocks also included metals. However, we will still continue to see the markets staying stable, but it is also likely to see wider participation when it comes to participation from the stocks.

Apart from this, the present technical structure, if read along with the Options data indicate a possible consolidation for the market. It is reiterated that shorts must be avoided and it would be prudent to stay invested in the relatively stronger stocks on a selective basis.

(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)