Trade Setup: Holding 18150 level key for avoiding Nifty from slipping into consolidation

The markets began the fresh week on a cautious note as it came off from its high point before ending the day on a flat note. Nifty50 saw a positive but a tentative start for the day. The headline index opened on a positive note and soon marked its intraday high point in the first hour of the trade. However, the gains didn’t sustain and the remaining part of the session saw the index paring its gains. After coming off from the high point, the markets did not take any directional bias and continued moving around the previous close levels. Until the end, no definite trend was established; the headline index ended the day with a minor gain of 6.70 points (+0.04 per cent).

From a technical perspective, it is important to note that Nifty50 has failed to sustain above 18150; this is the level that the index needs to take out convincingly to invalidate the current, potentially bearish, Head & Shoulders pattern. Theoretically speaking, as long as Nifty50 is below this point, there are possibilities of slipping into consolidation again. The F&O data did not show any major cue as to the possible trend; call writing was observed at 18200 levels and this level along with 18500 holds maximum accumulation of Call OI. This means that for any thrust on the upside, taking out 18200 will be crucial for Nifty50. This makes the levels of 18150-18200 a crucial resistance zone for the markets.

Tuesday is likely to see the levels of 18150 and 18200 acting as potential resistance points. The supports come in at 18040 and 17950 levels.

The Relative Strength Index (RSI) is at 55.80; it is neutral and does not show any divergence against the price. The daily MACD is bearish and below the signal line. A spinning top occurred on the candles; this reflects a lack of directional consensus among the market participants.

All and all, the behavior of markets is turning a bit defensive. This means that we will see select auto, banks and PSE stocks getting relatively stronger; at the same time, we will see traditionally defensive stocks like consumption and pharma also putting up a resilient and relatively strong show. Nifty50 is yet to get completely out of the woods and invalidate the potentially bearish H&S formation; until a definite directional cue is established, we recommend continuing to approach the markets on a selective note. 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])