Trade setup: Nifty to stay vulnerable to profit-taking bouts as long as it is above 17,600

Fresh selling pressure took Nifty to lower levels in the late afternoon trade. The last hour and a half saw the market rebounding from lower levels. The recovery was modest, and the headline index finally ended the day with a net loss of 144.65 points (-0.82%).

The market, exhibiting a tentative and cautious bias, was expected from the beginning of this week. The week is a shortened one with Thursday and Friday being trading holidays. Wednesday’s session would be the last session of the week. The weekly options expiry will also happen on Wednesday.

The previous session saw massive call writing taking place at 17,600. Though the highest Call OI for the immediate weekly options expiry is at 18,000. The second highest Call OI is seen at 17,600. This means that if Nifty has to stage a technical pullback tomorrow, moving past 17,600 will be immensely crucial. Until this happens, the upsides will stay capped and limited in their extent.

Wednesday is likely to see the levels of 17,600 and 17,665 acting as resistance points. The supports come in at 17,470 and 17,400 levels. The trading range is likely to stay wider than usual.

The Relative Strength Index (RSI) on the daily chart is 53.56. It has marked a fresh 14-period low which is bearish. However, RSI stays neutral and does not show any divergence against the price.

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The daily MACD is bullish and above the signal line, but the histogram is seen sharply narrowing over the past couple of sessions. A falling window emerged on the candles. This can have bearish implications but a confirmation on the next bar would be required.

All in all, the market is likely to stay cautious as the world markets will continue to function and the Indian markets would be closed. The Bank Nifty relatively outperformed the Nifty, but this may not continue for long.

There are chances that the index may try to stage a technical pullback. The market will stay vulnerable to profit taking bouts so long as they stay below 17,600 levels. Moving past this level will be important if Nifty has to see any meaningful pullback. It is recommended to continue staying put with defensives while keeping overall exposures at modest 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])