Trade Setup: Nifty50 forms an indecisive Doji candle; F&O data hints underlying strength

Nifty50 stayed in a capped range on Thursday, but also spent the entire day oscillating back and forth with positive undercurrents. After a positive start to the day, Nifty50 saw some corrective pressure, which in a way, was not unexpected given the kind of moves it had seen over the past two days. The markets slipped into the negative territory and remained weak until the afternoon when it crawled back into the green zone. After that, Nifty50 spent the rest of the session maintaining modest gains. The headline index finally ended the day with a net gain of 47.10 points (+0.27 per cent).

The weekly options expiry went on expected lines. The Call OI that was maximum at 17600 strikes saw Nifty50 not moving past that point. In the same breath, maximum Put OI climbed higher to 17500 levels which helped Nifty50 protect this point. Going by the F&O data, the undercurrent remains buoyant. Apart from minor deliberations which may be range-bound, by and large, the markets are likely to trade with a positive bias. The level of 17600 may pose minor resistance; once taken out, Nifty50 may move higher.

Volatility eased a bit; India VIX came off by 3.84 per cent to 16.6025. Friday is likely to see the levels of 17580 and 17630 acting as resistance points. The supports come in at 17445 and 17365 levels.

The Relative Strength Index (RSI) on the daily chart is at 50.34; it has marked a new 14-period high which is bullish. It stays neutral and does not show any divergence against the price. The daily MACD is bullish following a bullish crossover; it now trades above the signal line. A Doji candle with a long lower shadow occurred on the daily chart. Usually, such formations may lead to consolidation; however, we will need confirmation on the next bar.

The pattern analysis shows that Nifty50 achieved the price measurement obligations following a breakdown from a bearish Head and Shoulders formation. After this, it formed a base and has reversed from there.
All in all, looking at Nifty50 futures data hints at an underlying strength in the markets. Nifty50 December futures have added over 2.80 lakh shares or 2.53 per cent in the Net Open Interest. The addition in OI has come with the rise in the markets; this indicates a buildup of fresh long positions. Given the present technical setup, if some minor profit-taking or broad consolidation happens, creating shorts must be avoided. While using dips to pick select stocks, 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])