Trade setup: Market likely to stay in defined range with bullish undertone

Nifty inched higher and kept marking gradual highs until the end of the session. Despite a slight coming off from the high point, the headline index managed to post strong gains of 331.90 points (+2.07%).

Market gains were attributed to strong technical reasons and also some absence of fresh set of negatives on the geopolitical front. In any case, Nifty has managed to penetrate the trend line pattern resistance near 16,100-16,200 levels. In other words, this was the support that Nifty had violated on its way down. It had now become a resistance.

This would mean that Nifty has chances of the technical pullback getting extended if it is able to keep its head above 16,150-16,200 levels over the coming days.

Volatility cooled off a bit. India VIX came off by 3.91% to 27.4675.

Thursday has weekly options expiry coming up. The levels of 16,435 and 16,490 are likely to act as immediate resistance points. The supports come in at 16,280 and 16,175 levels.

The Relative Strength Index (RSI) on the daily chart is 42.34; it is neutral and does not show any divergence against the price. The RSI is, however, seen breaking out from a falling trend line resistance.

ET CONTRIBUTORS

The daily MACD is bearish and stays below the signal line. A strong white candle appeared on the charts; it reflected a strong directional consensus on the upside.

As indicated by the weekly options data, the markets still have some more room on the upside. The weekly options expiry is likely to influence the trade; the highest Call OI stays concentrated at 16,500.

Unless there is no major tactical change, the level of 16,500 is likely to act as resistance if the technical pullback gets extended. The highest Put OI stands at 16,000. There are possibilities that the market stays in a defined range with a bullish undertone.

The cooling off in the crude oil prices may give some respite on the badly beaten down stocks like financials, autos and paints. It would be prudent to avoid pockets like oil and metals, and look for opportunities in quality stocks if the markets offer any move on the downside. A cautious but positive 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 [email protected])