Trade setup: Nifty staring at couple of days of consolidation again

A spurt in the afternoon took the index back in the positive zone. However, this recovery was not sustained, and it soon slipped in the negative territory again. It fell below the 18,000 level, and eventually ended with a net loss of 96 points (-0.53%).

The strikes of 18,000, 18,200, and 18,400 saw strong call writing throughout the day. For the major portion of the session, the level of 18,000 saw highest call and put writing activity. The index finally gave up this level to close below this point. Now 18,000 strikes hold the highest Call OI accumulation for this week’s options expiry.

As of now, we can fairly conclude that unless the level of 18,000 is taken out again and that too convincingly, we will find the markets resisting this level for the next couple of days.

Volatility inched higher. IndiaVIX moved up by 3.23% to 18.4875.

Wednesday is likely to see the levels of 18,000 and 18,065 acting as potential resistance points. The supports will come in at 17,880 and 17,810.

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The Relative Strength Index (RSI) on the daily chart is 65.67. It stayed neutral and did not show any divergence against the price. The daily MACD is bullish and remained above the signal line. Apart from a black body that emerged, no other formations were seen on the candles.

The pattern analysis shows that Nifty has taken out the pattern resistance at 17,500. In the process, it has dragged its support levels higher. The most immediate resistance for Nifty is the 18,000-18,100 area; so long as the index is below this point, the markets will remain under ranged consolidation again.

The market breadth was showing a tentative approach; it remained equally divided as 25 stocks out of 50 in Nifty advanced, 24 declined, while 1 remained unchanged. The market breadth needs to be much stronger for any sustainable up move to happen.

In all probability, we are staring at a day or two of some consolidation again. So long as Nifty is below the 18,000-18,100 zone, it is strongly recommended to protect profits with each up move as the markets remain prone to defined consolidation and profit-taking bouts at higher levels.

(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])