Trade Setup: Nifty struggling to stay afloat; corrective consolidation highly overdue

The domestic equity market chose to take a breather on Wednesday after advancing in the previous session as the headline index Nifty oscillated within a 189-point range before ending the day on an absolutely flat note.

Nifty had a mild gap-up opening following the absence of any overnight cues and strong Asian markets. The index marked its intraday high point in the initial minutes of the trade. However, the market failed to capitalize on the strong opening as it went on to pare all the morning gains to trade flat in the afternoon. As the selling pressure intensified, the index went well inside the negative territory. However, it managed to recover and finally ended the day on a flat note with a negligible loss of 1.25 points or 0.01 per cent.

What happened in the market on Tuesday was very much on the expected lines. In the previous technical note, it was mentioned that the market may witness some incremental up move initially, but high beta stocks should not be chased. It precisely turned out to be the case as Nifty Bank came off over 700 points at one point from its opening high. It was also mentioned that despite a rising window (a gap up on the candles) happening, this should not be singularly interpreted as a bullish sign unless accompanied with a confirmation on the next trading day.

Nifty has shifted its resistance lower as the maximum Call OI has now shifted to 15,400. Another thing worth noticing was that there was much higher amount of Call writing being done with a very little amount of Put writing taking place in the market.

Volatility inched higher on expected lines with India VIX climbing up 1.42 per cent to 21.7800. Wednesday's session is likely to have a subdued start. The levels of 15,350 and 15,430 will act as resistance points, while support will come in at 15,265 and 15,100 levels.

The daily RSI was neutral at 71.40 and did not show any divergence against price. The RSI, however, stayed slightly overbought. The daily MACD was bullish and stood above its Signal Line. A spinning top occurred again on the charts. This showed indecisiveness of the market participants at higher levels.

All in all, Nifty is struggling to stay afloat after a gain of over 1,700 points from Budget Day. If there are no signs of consolidation or minor correction, this up move may get unhealthy or difficult to sustain. In other words, some corrective consolidation is highly overdue now. If the momentum in high beta stocks continue, it should be chased in an extremely selective manner. Defensive stocks continue to witness resilient relative performance. The overall market breadth is a cause for concern; this will need to be watched over the coming days. While staying light on leveraged exposures, a cautious and a highly stock-specific approach is advised or the day.

(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)