Trade setup: Market may consolidate; Nifty to see strong resistance at 16,800-16,950

It was in the afternoon that the index gave up some more of its gains on the back of profit-taking at higher levels. However, some recovery was seen in the last hour of the trade. The headline index managed to end on a strong note posting net gains of 249.55 points (+1.53%).

Market also navigated the weekly options expiry that stayed on the expected lines. The high Call writing at 16,800 and 16,700 levels did not allow the markets to move higher. In the same breath, the maximum Put OI at 16500 also prevented Nifty from slipping below that point. From a technical perspective, the high point for Thursday was very near to the lower edge of the bearish descending triangle that Nifty had broken down from. This level falls near 16,800.

Moving higher, the index has its 200-DMA which presently stands at 16,959. All this makes the zone of 16,800-16,950 a stiff resistance zone in the near term. Volatility declined as India VIX came off by 6.86% to 25.5825.

Friday is likely to see some consolidation happening with the levels of 16,680 and 16,750 acting as strong resistance points. The supports will come in at 16,500 and 16,380 levels. Trading range for the day may stay a bit wider than usual.

The RSI on the daily chart is 45.71. It has made a fresh 14-period high which is bullish. It also shows a bullish divergence against the price and appears to have broken out from a falling trend line pattern resistance.

ET CONTRIBUTORS

The daily MACD is bearish and trades below the signal line.

All in all, the market is likely to consolidate at higher levels with Nifty finding strong resistance in the 16,800-16,950 zone. It is strongly recommended to protect profits at higher levels. Along with this, even if there are any downside moves, creating shorts may be avoided at current levels.

It is reiterated that all down moves should be utilised to pick up quality stocks at lower levels. Profits too should be protected at higher 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 milan.vaishnav@equityresearch.asia)