Trade Setup: Breakout above 18k key for Nifty’s further up-move; stay stock specific

It was a classic day of consolidation for Indian equity markets on Friday, as Nifty50 took a breather, consolidated its gains, and ended the session with a modest gain. After opening on a strong note on Friday, Nifty50 climbed to mark the day’s high in the morning session. A corrective move followed from there, which saw Nifty paring all its gain to slip into the negative territory. However, Nifty50 took a U-turn and saw recovery from the lower levels for the remainder of the session. The headline index ended the day with a modest gain of 66.80 points (+0.38 per cent).

The past two sessions have seen Nifty50 taking some breather and consolidating, following a strong 1,500-point technical pullback from the December lows. As we step into a new week, there are higher chances that this consolidation may continue; in fact, this would be healthy for the markets. The options data show continued and steadfast existence of maximum Call OI at 18,000; making this point the important near-term resistance for Nifty50. Unless the levels of 18,000 are taken out convincingly, no runaway move is likely to happen. Downsides too, if any, are expected to be limited.

Monday is likely to see a stable start to the day; the levels of 17,865 and 17,930 are expected to act as resistance points. The supports come in at 17,730 and 17,650 levels. The markets are likely to stay in a broad but defined range.

The Relative Strength Index (RSI) on the daily chart is at 61.05; it is neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line.

Nifty50 formed a ‘Spinning Top’ candle on the daily chart. This is a kind of candle where there is a little difference between the open and close levels of the session. This denotes the indecisive behavior of the market participants.
All in all, there are greater chances of Nifty50 staying under a broad and defined consolidation range. In the event of any continued up-move, the levels of 18,000 will pose stiff resistance. No runaway up-move shall happen until Nifty50 breaches this level convincingly. The analysis for the coming session stays on similar lines; we are likely to see sectors like Metals, IT, Pharma, and select stock-specific outperformance from the broader space. In the event of any downside due to the possibility of consolidation, all such opportunities should be used to make select purchases. A cautiously positive outlook is advised for the day.

(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 [email protected])