Trade Setup: Fed outcome, weekly Options expiry to dictate Nifty move

Ahead of the outcome of the FOMC meeting, key equity indices chose to stay highly guarded even as the broader market saw a widespread rally on Wednesday. The session saw a flat start, as Nifty opened modestly positive and spent the entire session moving sideways. The index kept on oscillating in a narrow 70-odd points range, but ultimately took no direction throughout the day. However, Nifty managed to stay above the 17,500 level and finally closed with a minor loss of 15.35 points (-0.09 per cent).

We will have the overnight FOMC meet outcome to deal with along with the weekly options expiry on Thursday. Weekly options data showed unwinding of Calls at strike prices 17,400 and 17,500. There was also Put writing at these two points. If one were to interpret the options data for Thursday’s expiry, it looks like market participants do not expect Nifty to slip below the 17,400 level. However, these are indicative inputs as the market will inherit the overnight global trade setup.

Volatility remained absent; India VIX slipped mildly by 0.17 per cent to 16.4925. The opening and the trajectory Nifty shows on Thursday will dominate the trend for the rest of the day. The 17,600 and 17,665 levels will act as immediate resistance points for Nifty, while supports will come in at 17,500 and 17,410 levels.

The Relative Strength Index (RSI) on the daily chart stood at 71.37. Though mildly overbought, it remains neutral and does not show any divergence against the price. The daily MACD stays bearish and trades below its signal line.

Pattern analysis showed Nifty has formed a consolidation range as shown by the red and the green lines on the charts. The zone is created between 17,350 and 17,400 levels on the lower side and the 17,790 level on the upper side. Unless Nifty violates the lower levels of this zone or breaches the upper one, the market will continue to oscillate in this range.

All in all, so long as Nifty trades comfortably above the 17,350-17,400 zone, shorts should be avoided. On the other hand, buying should be limited in quantum and one should focus only on those stocks and sectors which have been showing improved relative strength against the broader market. If there is no negative cue overnight to deal with, the frontline indices should play catchup with the broader market. A selective approach 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)