Trade Setup: No signs of weakness, avoid shorts, keep purchases limited

The domestic equity market put up a rock-solid show once again on Wednesday, as it not only staged a fresh breakout, but also scaled and closed at new lifetime highs. In a relatively less volatile session, Nifty opened on a modestly positive note and marked the low point of the day in the early minutes of the session. Throughout the day, Nifty stayed in the positive zone and in an upward rising trajectory. At no point of time, did the market show any sign of weakness or profit taking. Nifty was successfully able to keep its head above the crucial 18,000 mark. It finally ended on a decently positive note, piling up a gain of 169.80 points, or 0.94 per cent.

We not only step into the weekly options expiry on Thursday, but it will also be the last trading day of this week. Friday is a trading holiday on account of Dussehra. Options data have shown steady and significant Call writing at 18,000, 18,050 and 18,100 levels. While maximum Call writing happened at 18,100 in the previous session, strike price 18,000 continued to hold maximum concentration of Put Open Interest. i indicating very strong support for the day. On the other hand, the 18,200 level holds maximum Call OI accumulation, followed by 18,300 and 18,500 levels. The market’s behaviour at the 18,200 level will decide the trend for the day.

Thursday’s session is likely to see a steady start for the day; the 18,200 and 18,295 levels will act as immediate resistance points, while support will come in at 18,100 and 18 030 levels. The Relative Strength Index (RSI) on the daily chart stood at 72.06. The RSI was mildly overbought but also neutral as it did not show any divergence against the price. The daily MACD showed a positive crossover; it remained bullish and above the signal line.

A rising window occurred on the candles, and it has resulted because of the gap-up start. Given the breakout, the current bar is also a break-away gap on the charts. Usually such formations resolve with the continuation of the current trend on the upside.

The market trends are very much on the expected lines. Sectoral outperformance is likely to continue. Auto, PSE, Banks, and select midcaps showed strong performance. This type of setups will continue to play themselves out in the near term.

Traders should avoid shorts at this stage, as there is no sign of any weakness. However, on the other side, it is important to keep new purchases limited to only those stocks that are defensive in nature with improving relative strength. While keeping strict trailing stop losses in place, a cautious outlook is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at [email protected])