Trade Setup: 15,273 immediate resistance for Nifty; avoid excessive leveraged exposures

Following very weak overnight cues and a prevailing weak trade setup in Asian markets, the domestic equity market opened on a gap down note on Thursday and ended the day with a cut.

Headline index Nifty formed its intraday low in the first hour of the trade. It managed to recover the bulk of its gains following a strong recovery in the first half. Afternoon trade saw the index losing ground again. Amid weak market breadth, Nifty ended the day with a net loss of 164.85 points or 1.08 per cent.

The expiry of weekly options did influence the trade. The highest Call OI that existed at 15,500 gradually shifted to 15,200, and this saw the market retracing from near this point while it attempted to recover. Going ahead from here, Wednesday’s high point of 15,273 is now the most immediate resistance for Nifty. In all probability, going by rudimentary pattern analysis, this level is the lower high formed after the formation of the lifetime high of 15,431 by Nifty. Unless this level is taken out, we will see the index oscillating within a defined but wide range. NIFTY PCR across all expiries stood at 1.24.

Nifty also saw creation of fresh short positions. Derivative data suggests that Nifty March futures have added over 17.31 per cent or 18.29 lakh shares in net Open Interest. Although the probable spikes in US bond yields will still be closely watched, any continued downside will find support from shorts at lower levels and this will help the market stay within a defined but broad range. Broadly speaking, the market has turned highly stock-specific in nature and staying with right stocks will matter the most over the coming days.

Thursday's session will see the levels of 15,135 and 15,190 acting as resistance points, while support will come in at 15,010 and 14,950 levels.

The daily RSI stood neutral at 55.58 and did not show any divergence against price. The MACD was bearish and remained below its Signal Line. A candle with a small while body occurred on the charts. However, this candle also has a long upper shadow which signifies potential weakness. Though this will require a confirmation on the next bar, it implies that higher levels achieved during the day were not sustained.

Given the fact that the market has turned highly stock specific in nature, we can expect resilient performance from select midcaps, energy, and infrastructure stocks along with some isolated stock specific outperformance from small banks. Apart from this, we will continue to see those stocks under pressure that are adversely affected by rising yields and strong US Dollar. Given the present technical setup, we recommend avoiding excessive leveraged exposures. While staying highly selective, we strongly recommend vigilantly protecting profits on either side while adopting a highly cautious view on the market.

(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)