Trade Setup: Tough for Nifty to breakout above 15,500; focus on protecting profits

As the benchmark equity index Nifty scaled a fresh lifetime high on Friday, it also retraced from higher levels and managed to maintain most of its gains.

The index opened on a positive note and stayed within a defined and capped range for the entire session. The intraday trading range of Nifty remained narrow; the index oscillated hardly 60-odd points during the day. Although the index came off from its high point, it ended yet another day with a net gain of 97.80 points or 0.64 per cent.

Although the market has marked an incremental high point and appeared to be largely bullish, there are a few contradictory points which should not be ignored. Nifty Futures added over 5.25 lakh shares, or 5.33 per cent, in June contract. This indicates the addition of fresh longs. On the other hand, Options data showed the maximum Call OI concentration at 15,500 and this strike continued to add Call OI throughout the day. This means that this level continued to act as a resistance and may put a breakout under question.

Further, Nifty gained 97 points in the previous session; nearly 92 points came from Reliance. This means that the index would have been flat if this had not happened. Also, the market breadth has not shown as much strength as it should have. The intraday size of movement also did not show any strong directional bias. All this points to a high degree of caution that market participants must exercise while chasing the momentum. With India VIX coming off by another 12.59 per cent to 17.4025, volatility remained as one of its lowest levels in the recent past.

The levels of 15,500 and 15,535 are likely to act as resistance points, while support will come in at 15,350 and 15,300 levels.

The Relative Strength Index (RSI) on the daily chart stood at 66.20. It marked a new 14-period high. However, it stayed neutral and did not show any divergence against price. Daily MACD was bullish and remained above its signal line. A spinning top that occurred on the candles continued to show the need of exercising caution at higher levels.

All in all, it is no way intended to convey that the things are outrightly bearish and it’s a matter of time that we will witness a large corrective move. However, what is being tried to convey through the above description is that while we chase the momentum on the upside, we cannot afford to ignore the above mentioned mixed technical setup. This is the time when it is required the most to continue staying highly selective while making fresh purchases and place higher significance on protecting profits at higher levels.

(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)