Trade Setup: Nifty remains directionless; 18050-18090 levels to act as resistance points

It was a sluggish day for Indian equities on Tuesday, as the market continued to modestly correct. Benchmark indices ended the day on a negative note after spending the major part of the session without any directional cue. The markets opened on a positive note; it marked the high point of the day in the early minutes of the trade. However, Nifty50 soon slipped into the negative territory and traded in a sideways trajectory. It did manage to rebound from the lower levels and go in the positive zone; however, that was short-lived. The last hour and a half saw intensified selling pressure gripping the markets. The headline index slipped below the psychological 18000-level. It finally ended with a net loss of 110.25 points (-0.61 per cent).

The options data do not present an encouraging picture. On one hand, Nifty50 is still not out of the woods as it deals with a potentially bearish Head & Shoulders formation. It has failed to move above 18150-level and therefore remains prone to bearish implications of this formation. On the other hand, the levels of 18000 and 18100 saw Call writing taking place; this makes the zone of 18150-18200 a major resistance area for the markets in the near term.

Volatility declined modestly as India VIX came off by 1.75 per cent to 15.1950. Wednesday is likely to see a tepid start to the day; the levels of 18050 and 18090 will act as potential resistance levels. The supports will come in at 17950 and 17880 levels.

The Relative Strength Index on the daily chart is at 51.79; it is neutral and does not show any divergence against the price. The daily MACD is bearish and remains below the signal line. A black-bodied candle emerged on the daily chart; apart from this, no other formations were seen on the charts.

The pattern analysis shows that the formation of a potentially bearish Head & Shoulders pattern stays valid. To invalidate this pattern, Nifty50 will have to move past the 18150-level convincingly and stay above that. Unless this happens, markets remain prone to some extended phases of weakness within a defined range.
All in all, we recommend staying away from creating any aggressive leveraged positions until a clear directional bias on either side is established. The markets are going to stay stock-specific for some more time; they are also likely to get increasingly defensive going ahead from here. We recommend continuing to stay extremely selective and approach the markets with a cautious outlook 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 [email protected])