Trade Setup: Nifty precariously poised, will swing to the tune of weekly options expiry

The domestic equity market ended on a flat note after a weak opening in Wednesday’s trade. Although Nifty recouped most of the opening losses, it has still not managed to move past the 11,300-11,350 zone. After opening with a mild downward gap, the market marked an intraday low in early trade and this point was defended throughout the session.

The first half of the session saw the market recover most of the losses, while the afternoon session was spent more in a rangebound manner. While the index never went into the positive territory, the headline index ended the day with a minor loss of 14.10 points, or 0.12 per cent.

Nifty is placed precariously near the resistance zone at 11,300-11,350. Weekly options contracts expire on Thursday and this will keep the market on the tenterhooks. The strike price at 11,300 saw maximum Put and Call writing on Wednesday and this kept the possibility of the market swinging either way on the expiry day of weekly options.


As of now, the 11,500 and 11,200 levels hold maximum concentration of Call and Put Open Interest respectively. Volatility slipped to its lowest level in the recent past as INDIA VIX declined by another 2.41 per cent to 20.8450.

On Thursday, the 11,350 and 11,390 levels are likely to act as key resistance points for Nifty, while supports will come in at 11,210 and 11,170 levels.

The Relative Strength Index, or RSI, on the daily chart stood at 67.92; it remains neutral and does not show any divergence against price. The daily MACD remains bearish as it trades below the signal line. A Spinning Top occurred on the candles. Spinning Tops are formed when the price difference between the opening and closing prices narrow; they often signal the state of indecision and lack of consensus among market participants.

The market is showing signs of mild distribution at higher levels. The technical setup shows Nifty continues to remain vulnerable at current level, unless the 11,300-11,350 zone is taken out convincingly. Also, a strengthening dollar may exert pressure on the emerging markets, as the Dollar Index is oversold on the short-term charts and this may inflict some temporary negative impact on emerging markets.

We recommend avoiding aggressive positions and approaching the market with a high degree of caution.

(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)