Trade setup: Nifty to see sustainable pullback only if it takes out 9,050-9,100 zone

The domestic equity market on Thursday traded on expected lines as weekly options expiry dominated the trade. The 9,000 level, which had the maximum Call open interest, prevented Nifty from going beyond this point. After witnessing a negative start, the market recovered from the morning lows, but did not see any runaway rally. While continuing to resist key levels, the headline index ended with a gain of 67.50 points or 0.76 per cent at 8,992.80.

Volatility cooled down considerably as India VIX declined 7.32 per cent to 49.10. The price action of Nifty against 9,050-9,100 will remain crucial over the coming sessions. Any sustainable technical pullback would happen only if the index moves past and keeps its head above this zone.

Friday’s session is likely to see a tentative start, with 9,050 and 9,115 levels acting as immediate resistance. Support may come in at 8,930 and 8,850. Any downside move is expected to make trading range wider than usual over the coming sessions.

The Relative Strength Index (RSI) on the daily chart was at 46.50 and stayed neutral, showing no divergence against the price. RSI was seen resisting to a falling trend line that is joining the indicator’s lower tops.

The daily MACD was bullish and traded above its signal line. A white body was formed on the daily chart.

As per pattern analysis, Nifty has remained in an area formation, wherein it has attempted to mark a base for itself by making a higher bottom near the 8,000 level. The index has strong resistance in the 9,050-9,100 zone and will have to move past this area to continue with the technical pullback.

Unless Nifty moves past and sustains above 9,050-9,100, it will continue to remain vulnerable against profit taking at higher levels. The index has made a higher bottom, but it is yet to break out of the current wide trading zone.

We would recommend traders to avoid significant exposures on the long side unless the index moves past the mentioned zone convincingly. As long as the market remained in the current trading range, profit on either side should be vigilantly protected.

(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)