Nifty: Trade setup: Nifty likely to see stable start for weekly options expiry, but remains vulnerable

In our previous note, we had categorically pointed out that despite a gap that was created, it may be insignificant and may not have bearish implications as it had occurred with an area pattern. While continuing to trade on the dotted lines on Wednesday, Nifty saw short-covering at lower levels and ended the day with gains. After opening on a flat note and trading without any directional bias initially, Nifty started to move higher and stayed on a rising trajectory throughout the day. Although it came off a bit from the highs, the index ended the day with gains of 205 points, or 2.29 per cent.

Volatility declined compared with the previous day, and volatility index INDIA VIX, came off 5.25% to 42.8225. Nifty continues to stay within the area formation of a Rising Wedge pattern. Owing to the placement of the index within this formation, the intraday range is likely to get narrower as we go ahead.

The lead indicators of internal strength continue to languish, and that will make Nifty vulnerable at each level it climbs, until the current pattern gets resolved. The market may see a stable start on Thursday, and weekly options expiry is going to dominate the session. The 9,225 and 9,390 levels will act as immediate overhead resistance for Nifty, while supports will come in at 9,110 and 9,050 levels.

The Relative Strength Index or RSI on the daily chart stood at 46.46; it remains neutral and does not show any divergence against price. The daily MACD remains bullish, as it trades above the signal line. A White Body emerged on the candles; and no other formations were noticed on the charts.

ET CONTRIBUTORS

Weekly options data show maximum Put open interest buildup at 9,000 level. It means this level is expected to play out as a reliable support on the downside. The market up-move has been on the back of short coverings, and this calls for protecting profits at each up-move. We would advise staying stock-specific in approach until the current pattern gets resolved with a directional bias.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)