trade setup: Trade setup: Any slip below 16,400 to invite incremental weakness

In a very controlled session, the market navigated the weekly options expiry with a bearish undertone as it ended the day on a negative note on Thursday. The market saw a stronger and better than expected start to the day. It opened higher but marked its intraday high in the early minutes of the trade. Following a strong start, the market started to gradually give up its opening gains; by afternoon, it slipped in the negative territory after giving up all its gains. The weakness persisted; Nifty drifted lower and marked its intraday low in the later afternoon trade. Minor recovery followed and the headline index ended the day with a net loss of 107.90 points (-0.65%).

As the weekly options expiry took place, it ensured that the market trades in the defined range. Given the high amount of call writing taking place at the levels of 16700 and higher, this prevented the Nifty from moving past this point. On the lower side, the highest Put OI which was at 16,500 remained at this level throughout the day. It ensured the Nifty keeps its head above this point. As of now, Nifty has defended the double bottom support at 16400; it would be crucially important for the index to defend this level and stay above this point. Any slip below this will invite incremental weakness.

Friday is likely to see the levels of 16565 and 16650 acting as resistance points. The supports come in at 16,450 and 16,400 levels.

The daily RSI is 38.17; it remains neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line. A bearish engulfing candle has appeared on the chart. Since this candle has emerged following a downtrend and near pattern support, it may mark a temporary reversal point for the markets. However, this will need confirmation going ahead from here.

The pattern analysis shows that after breaking down from a bearish descending triangle, Nifty has managed to consolidate in a broad range and averted any major decline. As of now, it has defended the double bottom support of 16400 levels; any slip below this will invite incremental weakness.

Given the present technical structure of the markets and also looking at the F&O data, the markets may try and attempt a pullback if the geopolitical tensions between Russia and Ukraine do not offer a fresh set of negatives to deal with. In either case, Nifty’s price action against the level of 16,400 will be crucial to watch over the coming days. It would be prudent to avoid aggressive positions on either side; new purchases must be kept limited and in moderate quantities. While making use of downsides to make quality purchases, a continued cautious 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])