Trade Setup: Nifty50 below 100-DMA; 17,300-355 levels to act as resistance zone

The markets traded range-bound with a negative bias on Wednesday, as they weighed caution ahead of the US Fed FOMC meeting outcome today. Nifty50 opened on a flat note and marked its intraday high point in the early seconds of the trade after which it immediately slipped into the negative territory. Nifty50 stayed in the red for the entire session as it kept oscillating in a defined range. The markets did not take any major directional calls throughout the session. The headline index ended the day with a net loss of 103.50 points (-0.60 per cent).

From a technical perspective, Nifty50 shows some divergent inputs. On one hand, the headline index has slipped below the 100-DMA which stands at 17291. On the other hand, Nifty50's current month futures data show significant addition of fresh shorts in the system. With Nifty50 staying within the “filters” of the 100-DMA despite closing a notch below that point, it now gets extremely crucial for the index to crawl above the 17300 level to defend the 100-DMA level on a closing basis. Given the number of shorts in the system, even if the weakness continues, Nifty50 is likely to find support near current levels unless a very large negative factor is to be dealt with.

On Thursday, Nifty50 is likely to see a stable start to the day. The levels of 17300 and 17355 will act as immediate resistance points and the supports come in at 17180 and 17050 levels.


The Relative Strength Index (RSI) on the daily chart is at 43.55; it is neutral and does not show any divergence against the price. The daily MACD is bullish and above the signal line. Apart from a black-bodied candle that emerged on the daily chart, no other major formations were seen on the charts.

All in all, Wednesday’s session saw some significant addition of shorts as reflected by the futures data. Nifty December month futures added over 3.71 lakh shares or 3.14 per cent in net Open Interest. This coming along with the decline in the index shows that fresh shorts were added to the system.

Weekly options expiry is coming up on Thursday. Though Tuesday saw maximum call writing at 17300, the levels of highest accumulation of Call OI is at 17500 levels. This means that if Nifty50 moves past 17300, we may see a stronger wave of short-covering again. Overall, the markets are likely to be in a range and trade with a weaker bias so long as Nifty50 is below the 17300 level. Until this happens, and given the amount of shorts in the system, there will be limited downsides from the current levels in the markets. In the same breadth, unless the level of 17300 is taken out convincingly, the markets are likely to continue staying in a range. A continued cautious outlook is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)