Trade Setup: Nifty has formidable resistance at 15,600, weekly options expiry in focus

After attempting a breakout in the previous session, the stock market consolidated before making any further moves. It saw a stable start to the day on anticipated lines. The Nifty50 index marked its day’s high in early deals, after which it slipped into negative territory. The entire session was spent where the index kept going on either side of its previous close. It took no directional bias throughout the day.

After spending the entire session in a sideways trajectory and within a limited range, the headline index closed flat with a loss of 7.95 points.

While the markets did nothing and spent the day in a directionless session, some noteworthy developments were reflected in the options data. As we head into the penultimate day of the weekly options expiry, it is important to take these statistics into consideration. The 15,600-strike price saw high call writing of 1.9 million shares as of
the end of the day. The open interest saw an increase of 1.9 million. However, at one point during the session, it had shown an increase of 2.9 million, which even overtook the 16,000 level in terms of maximum call open interest.

The strike of 16,000 still holds the maximum call open interest of 5.2 million, followed by 15,600 which has a call open interest concentration of 4.2 million.

The above data means that Nifty has formidable resistance at 15,600; in the same breath, if it takes out 15,600 it has the potential to test higher levels. The index's behavior against 15,600 will be crucial to watch until the expiry of the current weekly options. The levels of 15,600 and 15,685 will act as resistance; supports will come in at 15,500 and 15,415 levels.

The Relative Strength Index (RSI) on the daily chart is at 68.87. It is neutral and does not show any divergence against the price. The daily MACD is bullish and above its signal line. A spinning top occurred on the candles, showing a lack of directional consensus of market participants for the session.

All in all, it is needless to say that so long as the Nifty index is above the breakout level of 15,430, the present attempt to break out remains valid and in place. However, while keeping the analysis on similar lines, we also reiterate the importance of keeping a close eye on volatility and the market breadth. Both remain a concern in the near term.

The volatility gauge rose 2.97 per cent to 17.3875.

We maintain a cautious stance on the market and recommend focusing more on defensive stocks while following the current momentum on the upside. The improvement in the relative strength is seen in the defensive space, which is likely to continue for the immediate near term.

We recommend continuing to keep exposures at modest levels while approaching the markets on a highly cautious note.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)