Trade Setup: Adopt a selective approach, profits must be protected at higher levels

The index inched higher and recouped all its opening losses by late afternoon trade. It stayed in an upward trajectory throughout the day and kept marking incremental high points. Though it stayed sideways during the last half hour of the session, but largely maintained the gains. The headline index closed with a net gain of 105.25 points (+0.64%).

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It was the weekly options expiry, and it went well on the expected lines. The markets picked up steam the moment it was above 16,500. This level continued to see high put wiring activity during the day. Moving on from here, the Nifty is near the upper edge of the consolidation and any move above 16,700 will propel the markets higher.

So long as the Nifty is below 16700, it will stay in the broad 16,400-16,700 congestion zone and would trade with positive bias but will refrain from taking any sustainable directional bias. Friday is likely to see a stable start; the levels of 16,700 and 16,765 will act as immediate resistance points. The supports come in at 16,550 and 16,480 levels.

The Relative Strength Index (RSI) on the daily chart is 53.31. It shows a mild bullish divergence against the price. The daily MACD is bullish and remains above the signal line. A bullish engulfing candle emerged on the charts; it may act as a potential onset of resumption of the up move for the index, subject to confirmation.

The pattern analysis shows that the Nifty got a breakaway gap above 16400. However, after that it consolidated in a narrow zone and saw a classical throwback. It tested the levels from where it had broken out and it has tried to resume to up move. It has resistance near 16700; any move above that will propel the markets higher.

All in all, the analysis remains on similar lines. If the markets have some mild profit taking or remain weak if weak global cues affect them, it is strongly recommended to refrain from creating fresh shorts. All dips, if any, must be used to make select purchases. While continuing to adopt a selective approach in the markets, profits too must be protected at higher levels unless the level of 16,700 is taken out comprehensively.

(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 [email protected])


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