Trade Setup: Avoid shorts as long as Nifty50 is above 100-DMA

Asia's Tech News Daily

Nifty50, Nifty, Nifty Trade Setup, Trade Setup, India VIX, RSI

In a strong surge fueled by short-covering, the Indian equity markets climbed higher for the second day in a row to end with robust gains. Yesterday’s technical note mentioned that the Nifty has ended just at the 100-DMA, and moving higher was important to further the movement. The Nifty today saw a gap-up opening. It opened much higher than the 100-DMA and stayed above that point for the rest of the session. No profit-taking crept in at any time. The index managed to preserve all its gains while ending near the high point of the day and ended the day with a strong gain of 293.05 points (+1.71 per cent).

The markets have again moved comfortably above the 100-DMA, which stands at 17,212, making this area once an important support level on a closing basis. We head into the expiry of the weekly options, and the options data suggests range-bound markets for Thursday. Following a good amount of Call unwinding, the maximum Call OI now stands concentrated at 17,600, followed by 17,500 levels. The highest Put OI is at 17,400, followed by 17,300 levels. This means that there are lesser chances of any major, corrective move. Either the markets will extend gains or stay range bound and consolidate in the current zone.

Thursday is likely to see a stable start to the day. The levels of 17,500 and 17,580 are likely to act as resistance points; the supports will come in at 17,400 and 17,360 levels.

The Relative Strength Index (RSI) has marked a 14-period high which is bullish. It remains neutral and does not show any divergence against the price. The daily MACD is bullish and below the signal line. However, the narrowing slope of the histogram shows that it is moving towards a positive crossover in the coming days.

Nifty50, Nifty, Nifty Trade Setup, Trade Setup, India VIX, RSI
ETMarkets.com

A rising window emerged on the candles. This results in a gap on a trading day where the low of the current candle is higher than the high of the previous candle. The usual implication of such a candle results in the continuation of the trend.

However, in the present case, this is an area gap. The one that is within a trading range pattern and hence may not be as potent as it should have been. All in all, the Nifty has risen over 560-points in two trading sessions. If that leads to some consolidation, that should not come as a surprise to anyone. We recommend focusing more on the protection of profits at higher levels.

All new purchases must be kept at modest levels with an increased focus on the defensive and low beta stocks. Shorts must be avoided as long as the Nifty is above the 100-DMA levels. Overall, a 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 milan.vaishnav@equityresearch.asia)

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