Trade Setup: 17,400 level has highest Call, Put OI; signals likely consolidation

Despite staying in the overbought territory, Nifty continued to inch higher as it closed at a new lifetime high. The market saw a much better-than-expected start to the day as it opened higher and on a much resilient note compared with its peers. However, the index formed an intraday high in the early minutes of the session and pared some portion of its opening gains. The index then spent the entire session in a sideways trajectory, as it oscillated in a 30-points range throughout the day.

While not taking any directional call at any point in time, the headline index closed with a marginal gain of 54.20 points (+0.31 per cent). The market is now showing some signs of weariness at current levels. Strike price 17,400 saw the highest amount of Call and Put writing and this level also continues to hold the highest Call OI at present. This means there is every possibility of Nifty consolidating around these levels, and in the process, making the market all the more stock-specific in nature. Any fresh upmove shall occur only above the 17,500 point as the 17,400-17,500 zone has become a potentially strong resistance.

Volatility continued to edge higher; India VIX rose 3.87 per cent to 15.1050. The 17,400 and 17,485 levels are likely to act as key resistance points in Tuesday's session while supports are likely to come in at 17,330 and 17,240 levels.

The Relative Strength Index (RSI) on the daily chart stood at 83.39; it stays in the overbought territory. The RSI is neutral and does not show any divergence against the price. The daily MACD is bullish and above its Signal Line.

A Spinning Top occurred on the candles. This has resulted out of a small real body. This reflects little price action during the day and shows lack of directional consensus among the market participants.

All in all, the market has turned increasingly stock-specific in nature. While there are no signs of any weakness yet on the charts, we recommend avoiding aggressive buying; the ongoing momentum may be chased very cautiously. Also, the current technical setup mandates vigilant protection of profits at higher levels. While continuing to stay defensive and stock-specific in approach, 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 and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)