Trade Setup: Nifty trading range likely to remain wider; chase up moves with eyes wide open

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The overbought Indian equities continued to rally on the last day of the week as they went on to end yet another day with gains.

After a quiet start to the day, headline index Nifty largely consolidated as it pared gains twice to test the previous close levels during the day. While it looked that the index may have a range-bound consolidation, the last hour-and-a-half of the session took the market higher. Nifty went past the important 17,300 level and ended with a net gain of 89.45 points or 0.52 per cent.

The market remains evidently overbought on the daily charts, making range-bound consolidation almost imminent. However, F&O data continues to show inherent strength and short-term buoyancy. The current week not only saw Put unwinding happening in 17,200-17,300 levels, it also saw fresh Call writing taking place at 17,500 level. This indicates that the index is trying to make some more room on the upside. Volatility continued to rise as India VIX ended higher by 2.12 per cent to 14.5425.

With a modestly positive start expected to the day, the levels of 17,400 and 17,465 are likely to act as probable resistance points while Nifty might stay in uncharted territory. The index may find support at 17,265 and 17,180 levels. The trading range for the market is likely to stay wider over the coming days.

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The Relative Strength Index (RSI) on the daily chart stood in the overbought territory at 82.61. RSI, however, stayed neutral and did not show any divergence against price. The daily MACD stood bullish and traded above its Signal Line. A white body appeared on the candles. Apart from this, no other formations were noticed.
The pattern analysis of the daily chart shows Nifty is trading in uncharted territory. After a major breakout above 15,900-15,950 zone, the index kept moving higher with minor consolidations in between for a few days. In the process, it kept dragging the support levels higher. In the immediate short-term, 16,600-16,800 is the major short-term support area for the market if a broad consolidation happens.

Focussing again on the immediate near-term, given the F&O data that shows continued inherent strength in the market, it would be prudent to chase up moves with eyes wide open while vigilantly guarding profits at higher levels. Aggressive shorts are not advised as there are no signs of any corrective action. The shake-outs, whenever they happen, have stayed intraday. So, while continuing to avoid shorts, it is recommended that a stock-specific approach with a strict trailing stop loss levels should be followed for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)