nifty: Trade setup: Till Nifty stays below 200-DMA, profits need to be vigilantly protected

Domestic equities opened on a strong and resilient note. It traded in a capped range in the first half of the session and grew stronger in the second half to end the day. After opening on a mildly positive note, Nifty pared the gains to slip in the negative territory briefly. The index, however, crawled back inside the positive zone. It kept marking incremental gains; largely, the markets stayed in a range.

The second half of the session saw some good strength in the markets. The Index intensified the move on the upside. It went on to mark a new intraday high and managed to end the day with a strong gain of 240.85 points (+1.45%).

From a technical perspective, the NIFTY has tested the lower edge of the bearish descending triangle that it had violated on the downside. This makes this level a potential resistance area. The 200-DMA is presently at 16,974. This makes the zone of 16,850-16,974 a strong resistance zone for Nifty going ahead.

Unless the Index moves above this zone, it is potentially very much likely to consolidate at current levels with capped upsides. Even if the up move gets extended, there are greater chances of Nifty consolidating at current or higher levels.

Despite a strong trending move, volatility did not decrease. In fact, IndiaVIX rose modestly by 1.31% to 25.6775. Tuesday is expected to see the levels of 16,900 and 16,965 acting as potential resistance levels. The supports come in at 16,800 and 16,680 levels.

The daily RSI is 50.70. It has marked a new 14-period high; it also shows a strong bullish divergence against the price. The daily MACD is shown a positive crossover. It is now bullish and trades above the signal line.

The F&O data continues to show some more room on the upside. However, if we use weekly options data to see how much there is actually room for the Index to move higher, it appears that the upsides may be limited to 17,000 levels.

Monday’s session saw a large amount of call writing at 16,900 levels while 17,000 levels continues to hold maximum Call Open Interest. If Nifty does not correct much, the consolidation may be rangebound with the levels of 17,000 acting as a very strong resistance point for the

markets.

All in all, it is recommended not chasing any further moves on the upside as Nifty will near the resistance zone of 16,900-16,965 levels. The 200-DMA is still a bit away and is all likely to act as a strong resistance point on a closing basis.

So long as Nifty stays below the 200-DMA which is presently at 16,974, profits need to be vigilantly protected at higher levels. 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])