Trade Setup: Changes in OI suggest shift in support levels; stay choosy on stocks

A short-covering led move helped by strong global cues pulled the market higher on Tuesday, and helped Nifty close the session with gains. Despite a favourable trade setup, Nifty saw a weaker-than-expected start even as it opened on a positive note. In a rangebound trade in the morning, the Index maintained its gains. The market grew stronger in the second half of the day, and Nifty managed to move past the 17,800 level in the final hours of trade. Following a mild paring of gains, Nifty finally ended with a net gain of 119 points, or 0.76 per cent.

Nifty options data threw up interesting insights. The 15,700, 15,750 and 15,800 levels saw Put writing as well as unwinding of Call Open Interest. Both these things indicate a shift of support to higher levels. On the other hand, the highest Call OI concentration was seen at 15,800 level and that has now shifted back to 16,000 level. All this indicate that Nifty may have opened up some more space for itself on the upside, and at the same time, the 16,000 mark continues to be a major resistance point for the market.

The short-covering move may have shifted the supports higher, but the 15,850-15,900 zone remains a very stiff resistance area. The 15,850 and 15,900 levels are likely to act as key resistance, while supports may come in lower at 15,730 and 15,650 levels.

The Relative Strength Index (RSI) on the daily chart stood at 57.48. It remains neutral and does not show any divergence against the price. The daily MACD remains bearish and stands below the Signal Line.

A Spinning Top occurred on the candles. Apart from this, no other significant formations were observed on the candles.

Pattern analysis showed Nifty is under a sideways consolidation after testing the 15,900 level for the first time. The index has been consolidating ever since. Unless Nifty is able to move past the 15,900 level convincingly, any meaningful rise is unlikely to take place.

The move that was seen in the previous session was because of short covering. This was evident as Nifty futures saw a decline of 1.16 per cent, or over 1.08 lakh shares, in Open Interest. We recommend continuing to stay highly selective and approaching the market with a cautious outlook.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])