Trade Setup: Nifty50 needs to keep its head above key 20-DMA level

Indian equity markets saw a fairly stable session on Tuesday as they opened higher and ended the day with a decent gain. On the anticipated lines, Nifty50 saw a positive start to the day. Although Nifty50 traded in a defined trajectory, it kept marking incremental gains throughout the day. The volatility was near-absent all through the session as the markets maintained their gains throughout the day. There was very mild profit-taking seen in the afternoon; however, that was also swiftly bought into. By the end of the day, the headline index ended the day with a net gain of 147 points (+0.86 per cent).

We enter the penultimate day of the current month’s derivative expiry; the session is likely to stay influenced by rollover-centric activities. While examining the weekly options data, the level of 17200 has seen maximum addition of PUT Open Interest; high Put writing at this point shows the expectations of the market participants of this level acting as a support. However, despite the high Put writing at 17200; the maximum Put OI is still seen at 17000 levels. This means that if Nifty50 is able to keep its head above 17200, we may see the up move getting extended. If the index slips below 17200, we may see it taking some breather and consolidating in a defined range.

The Relative Strength Index (RSI) on the daily chart is at 55.17; it has marked a new 14-period high which is bullish. The daily MACD is bullish and trades above the signal line. A rising window occurred; this results out of a gap on the upside and usually resolves with the continuation of the trend.

Pattern analysis reveals that Nifty50 has managed to move past the small trend line pattern resistance that existed near 17200. The index has also moved past the short-term 20-DMA which presently stands at 17161. This means that Nifty50 has successfully navigated the 17150-17200 resistance zone; the key would be to see if the index can keep its head above this zone.

The market breadth remained strong as 48 of Nifty50 stocks ended in the positive territory. For the coming two days, if Nifty50 stays above 17200, we may see the up move getting further extended. Any slip below the 17200 levels will invite some consolidation on the charts. The markets will also continue staying highly stock-specific; some relative underperformance from the financials may persist for some time. The broader markets along with the defensive stocks like IT, pharma, and select consumption stocks may continue to do well and stay relatively resilient.

(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])