Trade setup: Markets will remain prone to volatility; highly defensive approach advised

However, the markets reversed its trajectory. It kept piling up incremental gains through the rest of the session and moved past the crucial resistance point of 17,200. Though Nifty did come off a bit from the high point, the headline index closed with a net gain of 206.65 points (+1.21%).

The monthly derivatives expiry was seen getting done on a strong note. The strikes of 17,200 saw massive Put writing done through the session. This ensured that Nifty stayed and settled above the 17,200 levels. However, the maximum Call OI stayed constant at 17,300. It saw Nifty settling below this level.

The next week’s weekly options data continues to show the zone of 17,000-17,500 as a probable trading range with sustainable directional bias getting established with either of the levels getting taken out. Nifty has again closed near the 200-DMA which presently stands at 17,219. This level has to be watched closely as Nifty will have to move past this point if it has to extend its pullback.

Friday is likely to see a stable start to the day. The levels of 17,350 and 17,465 will act as probable resistance point. Supports will come in at 17,180 and 17,040.

The Relative Strength Index (RSI) on the daily chart is 49.55. It continues to stay neutral and does not show any divergence against the price. The daily MACD is bearish and below the signal line.

ET CONTRIBUTORS

A spinning top emerged on the candles. Such a candle occurs when there is little difference between the open and the close levels.

The pattern analysis shows that Nifty has created a congestion zone between 17,000-17,500 levels. All three key moving averages are within this zone in close proximity to each other.

All in all, despite the strong moves on either side, no move, up or down, should be taken for granted or chased in any particular direction.

The markets will remain prone to volatile moves on both sides so long as it is in the congestion zone of 17,000-17,500. For any sustainable extension of the up move, it would also be additionally important for Nifty to move past the 200-DMA and keep its head above that point.

It is recommended to continue maintaining a defensive approach. All profits must be protected vigilantly 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 [email protected])