Trade Setup: Nifty must stay above 18K to avoid consolidation

Following a weak global trade setup, the Nifty50 opened lower and marked its intraday low in the early minutes of trade. While the index remained in the negative territory, it kept gradually recouping the early morning losses. By late afternoon, it even managed to recoup all its losses and trade briefly in the positive zone. But some recovery was given up in the final hour of trade as the headline index ended the day with a modest loss of 27 points.

Nifty50 approaches the weekly options expiry on Thursday. And the data does not offer any major directional cues. It largely hints at Nifty staying within a broadly defined range. The levels of 18,000 saw maximum call writing in Wednesday’s session but Nifty still managed to end a notch above that point. As per the weekly data, the strikes of 18,200 has the highest accumulation of Call OI, maximum Put OI is on 17,800 and 17,900 levels with 3.9 million shares. In either case, the opening levels of the markets and its ability to stay above 18,000 will dictate the trend for Thursday.

That said, the volatility increased slightly as India VIX climbed 1.89 per cent to 16.30.

On Thursday, the levels of 18,055 and 18,130 will likely act as immediate resistance points. The supports can come in at 17,940 and 17,880.

The Relative Strength Index (RSI) is 53.45. It is neutral and does not show any divergence against the price. The daily MACD, however, is bearish and remains below the signal line. No major formations were noticed on the candles.

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From the pattern and trend analysis point of view, Nifty is resting on its crucial support level of 18,000. This was the resistance level after the index had slipped below this point. So, this makes the Nifty’s price behaviour vis-à-vis this level very important when it comes to determining the trend for the immediate near term.

For the markets to avoid slipping into any more consolidation, it would be crucial for Nifty to keep its head above the 18,000 levels. Any slip below this may invite temporary short-term weakness and may cause the markets to consolidate in a defined range.

Traders should avoid excessive leveraged exposures. While avoiding shorts, all purchases should be kept highly defensive and in those stocks that are showing improving Relative Strength against the broader markets. Stock-specific outperformance is likely to continue without any one particular sector staying in the forefront. A cautious and selective approach is advised for the day.