Trade Setup: Imperative for the markets to open and stay above 16,500 levels

It was the afternoon trade that saw the markets giving up some gains. The Nifty witnessed some sharp decline which to it below 16,450 levels. The last half hour of the trade saw the markets recovering from lower levels. The index rebounded over 100-points from the low point and finally ended the day with a cut of 61.80 points (-0.37%).

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On Thursday, we enter the expiry of the weekly options, the level of 16,500 has the highest PUT OI as of now. This means that this level is expected to act as support.

In other words, it would be imperative for the markets to open and stay above the 16,500 levels. Any slip below this point is likely to invite incremental weakness. For Thursday’s session, Nifty’s behaviour vis-à-vis the levels of 16,500 will be crucial to watch as it will dictate the trend for the day. Any longer sustenance above 16,500 will invite some short covering from the lower levels.

Thursday is likely to see the levels of 16,610 and 16,665 acting as potential resistance points. The supports come in at 16,485 and 16,380 levels.

The Relative Strength Index (RSI) on the daily chart is 51.09. It remains neutral and does not show any divergence against the price. The daily MACD is bullish and stays above the signal line. Apart from the black body that emerged on the candles, no other major formations were found on the charts.

From a pattern analysis point the Nifty has shown a classical throwback after it broke above 16,400 with a gap. The breakaway gap created above 16,400 is now filled as the Nifty tested very same levels from where it staged a breakout from a broad trading range formed between 16,400-15,700 levels. 16400, is thus, the most immediate and important pattern support for the markets.

All in all, the analysis for Thursday’s session remains on similar lines. As long as the Nifty is above 16,400 levels, it is strongly recommended that shorts must be avoided. Instead, all dips must be used to pick quality stocks at lower levels.

With the markets completing a classical throwback after a strong breakaway gap above 16,400, it is likely to trade with inherently buoyant bias unless we have negative global cues to deal with. It is reiterated that a selective and stock-specific approach must be continued 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 [email protected])

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