Trade Setup: Fresh upside only after Nifty crosses 14,260; undercurrent stays strong

In what can be described as the onset of a classic consolidation, the domestic benchmark equity index Nifty took some breather again and spent the day within a defined range on expected lines.

The market opened with a modest gap up and marked the intraday high point in early minutes of the trade. After that, Nifty spent the day in a measured way and under a gradual decline. In the last hour of the trade, it slipped into the red and formed its intraday low. Following a modest recovery, the headline index finally ended the day by paring all its opening gains with a mild loss of 8.90 points, or 0.06 per cent.

The previous session stayed thoroughly governed by the weekly options expiry. 14,200 level saw heavy Call writing throughout the day; this ensured Nifty does not settle above this point. Given the two near-similar high points of the day, the level of 14,260 is the level that Nifty will have to move past convincingly for any resumption of the up move. Until this happens, the market will continue taking some breather and will consolidate in a broad range. Volatility cooled off a bit with India VIX coming off 1.81 per cent to 20.6150.


Friday's session will see the levels of 14,230 and 14,265 acting as resistance points, while support will come in at 14,080 and 14,000 levels.

The daily RSI stands at 72.94; it stays mildly overbought but also remains neutral and does not show any divergence against price. The daily MACD is bullish as it trades above the Signal Line. However, the histogram appears flattened and there is total absence of signs of any momentum on the upside.

A mildly engulfing bearish candle has occurred on the charts. This may not be a big sign of worry. However, it certainly shows some exhaustion of the market at current levels and some increased possibilities of the market taking some breather.

The undercurrent stays strong and buoyant. However, if the market undergoes any consolidation in a ranged manner, it will just make the present up move seen over the past days healthier and more sustainable. Regardless of the strong undercurrent and risk-on setup in place, fresh upsides will occur only after Nifty moves past 14,260 convincingly. Until this happens, the texture of the market will continue to stay stock specific. The RS Line of the broader Nifty500 index is rising against the frontline Nifty, and this will see the broader market performing better than the frontline over the coming weeks. We reiterate staying highly selective, avoiding shorts and following the trend and keep protecting profits.

(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)