Trade setup: Nifty50 likely to see sporadic rallies; but stay cautious

Tuesday’s session turned out much on the anticipated lines, as Nifty traded in a broad range and ended with modest gains. The domestic market took cues from the overnight recovery in the US market, followed by a strong Asian market setup and opened with a strong gap up. However, the market failed to capitalise on the buoyant opening and did not breach the opening highs for the rest of the session.

By afternoon, the index had pared over 250 points from the high point of the day and slipped into the negative zone, wiping out all the gains. The last two hours of the session, however, saw some recovery and this helped Nifty eventually end with a net gain of 100 points, or 1.02 per cent.

The market is likely to stay jittery for a few sessions and move in a wider-than-normal trading range. Important thing to note is that despite the wild swings and with Nifty moving past the 10,000 level momentarily, the maximum Call open interest continued to be concentrated at strike price 10,000 and it did not shift higher or lower. This indicates that unless a tactical shift occurs in options, the 10,000 mark will continue to pose resistance to Nifty. The index’s price action against this level will be crucial to watch.

The 9,980 and 10,040 levels will act as immediate overhead resistance points, while supports are likely to come in much lower at 9,755 and 9,660 levels. Upsides are expected to remain capped, but any move on the downside is likely to make the trading range wider than usual.

The Relative Strength Index (RSI) on the daily chart stood at 57.03. It remains neutral without showing any divergence against price. As expected, and mentioned in the previous notes, the daily MACD has shown a negative crossover. The indicator trades below the signal line, sending out a bearish signal.

ET CONTRIBUTORS

A Hanging Man candle emerged on the chart. This candle has appeared not only when Nifty is in a rising channel, but also below the important resistance point that lies at the 100-DMA, which currently stands at 10,156. This makes the current candle formation potentially bearish.

Given the current technical setup, Nifty will continue to experience sporadic up-moves. At the same time, the up-moves, if any, will remain limited in its extent. The downsides, as and when they occur, will make the trading range wider. We reiterate staying away from creating aggressive bets on either side, approaching the market with caution and protecting profits vigilantly at higher levels.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])