Trade Setup: Nifty showing clear signs of halt in rally; 13,500-13,550 strong resistance zone

In a session that stayed dominated with weekly options expiry, the Indian equity market took a breather while halting its unabated up move and ended with a minor loss on Thursday.

The headline equity index Nifty had a negative opening and soon reached the low point of the day in early morning trade. Nifty traded within a sideways trajectory for most of the day. The last hour of the session had a strong pullback on the back of heavy short covering. The index recouped more than half of the losses and ended with a net loss of 50.80 points or 0.38 per cent.

Nifty is now showing clear and visible signs of some halt in the current rally. The previous session was heavily influenced with weekly options expiry. The highest Put and Call OI was concentrated between 13,400 and 13,500 levels. This did not allow Nifty to slip below 13,400 and did not allow the index to move past 13,500. The surge in the last hour was on the account of short covering; this was evident with the Nifty futures shedding over 6.85 lakh shares or 5.50 per cent in Open Interest. This action makes 13,500-13,550 a very strong resistance zone for Nifty in the near term.


Friday's session is likely to see the levels of 13,500 and 13,550 acting as resistance points, while support will come in much lower at 13,380 and 13,310 levels.

The Relative Strength Index (RSI) on the daily chart is 75.75. It stays overbought and also remains neutral as it does not show any divergence against price. The daily MACD is bullish and trades above the Signal Line.

A Doji candle occurred again on the charts. Although it would require a confirmation on the next trading day, it has all the potential to mark a temporary top and halt the current rally; especially when it has emerged near the high point.

Much on the anticipated lines, the market showed strong preference towards FMCG, consumption and pharma stocks, which are traditionally considered defensive ones, along with IT. We expect this pattern to continue over the next coming days as these stocks offer much better risk-reward ratio, which otherwise remain highly unfavorably stacked for high beta stocks. We recommend continuing to approach the market in a highly cautious manner and keep vigilantly protecting profits at the current level.

(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)