Trade Setup: 14,000 inflection point for Nifty; stick to defensive stocks

In a day that was secularly bearish for the domestic equity market, headline index Nifty took a deep cut and extended its corrective move.

Nifty opened on a negative note and remained within a falling trajectory throughout the day. On expected lines, Nifty opened well below 14,250, violated the lower pattern support of the broad 14,650-14,250 zone and inflicted incremental weakness on itself. The index also slipped below the 14,000 mark and showed no sign of recovery of any nature. The headline index ended the day with a net loss of 271.40 points or 1.91 per cent.

As we enter the expiry of the monthly derivative series, the weekly options data offer interesting insights on what may be lined up for the market on Thursday. The strikes of 14,100 saw maximum Call writing; this means that majority of the market participants expect Nifty not going above this point. This also corroborates with the overall OI analysis which shows the level of 14,100 holding maximum Call Open Interest. Further to this, the strikes of 14,000 shows near-similar concentration of Call and Put Open Interest. We can fairly conclude that the level of 14,000 can act as an inflection point. If Nifty stays below this level for long, it may see some more slippage. On the other hand, upsides shall stay capped if the index moves above 14K.


Volatility surged as the India VIX moved higher by 4.93 per cent to 24.3925. Thursday's session is likely to see the levels of 14,000 and 14,090 act as resistance points, while support will come in at 13,900 and 13,865 levels.

The Relative Strength Index (RSI) on the daily chart is 45.37; it has marked a new 14-period low which is bearish. RSI, however, does not show any divergence against price. The daily MACD is bearish and it trades below its Signal Line.

The pattern analysis shows that the index has violated the lower end of the broad consolidation zone of 14,650-14,250. The opening of Nifty below this point and the formation of a large black candle reaffirms this analysis and makes the level of 14,250 as an intermediate resistance point for the future.

As indicated in the previous technical note, defensive stocks like consumption, pharma and IT were in favour. This trend is likely to continue in the next session as well. We reiterate staying away from high beta stocks and continue to approach the market with a highly defensive approach, while keeping overall exposures at a modest level.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)