Trade Setup: Shorting the market is unlikely to provide any favourable risk-reward preposition

The index opened on a modestly positive note but soon slipped into negative territory. By afternoon, the markets managed to crawl back into the positive territory. However, the recovery was not sustained. The index slipped again into the negative zone. The benchmark index finally closed with a modest cut of 89.55 points (-0.55%).

ETMarkets.com

The analysis for Wednesday remains much on similar lines. If there are no major overnight negative cues to deal with, the markets may find themselves opening once again on a stable note. Apart from this, we also step into the penultimate day of the expiry of the current-month derivative series; the session will remain dominated and influenced by the rollover-centric activities.

The upsides may be capped near 16,300, any move above 16,300 may fuel some short-covering again in the markets. Until that happens, we will continue to see the level of 16,300 offering stiff resistance to the markets.

Wednesday is likely to find the levels of 16,210 and 16,300 acting as immediate resistance points. The supports come in at 16,030 and 15,960 levels.

The Relative Strength Index (RSI) on the daily chart is 42.01. It stays neutral and does not show any divergence against the price. The daily MACD is bullish and stays above the signal line. A black-bodied candle appeared on the charts; no other formations were noticed.

The pattern analysis shows that the most recent price action has seen the Nifty creating a trading range between 16,400 and 15,700; the Nifty’s price behaviour against the range will decide the directional move in the near term.

In other words, no directional move on the upside or downside is likely unless the levels of 16,400 are taken out or 15700 are violated. The reason behind the levels of 16400 acting as stiff resistance is the gap that exists between 16,400 and 16,650 levels.

All in all, going by the overall options data, the markets may have their upsides capped in the range of 16,300-16,400. Also, there are possibilities that the markets may remain highly selective and stock-specific. The shorts continue to exist in the system; shorting the markets in the current scenario is unlikely to provide any favourable risk-reward preposition.

A continued cautious approach while staying light on overall exposure 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] )