Trade setup: Broader indices may outperform mkt; but keep overall exposures modest

The corrective undertone continued to persist in the Indian equity market as it opened lower and extended its losses to end the day in the red.

Nifty opened on a flat note but soon slipped in the negative territory. The index kept marking gradual incremental lows and showed no intention to recover during the day as the markets slipped below the psychologically important 18,000 levels.

Although some modest recovery was seen towards the end, Nifty still ended with a loss of 174.65 points (-0.96 per cent).

As we approach weekly options expiry, the session will stay dominated by the expiry-influenced activities. Large amount of Call writing was seen at 18,000 and 18,100 levels.

However, the maximum Call OI still stand at 18,300 levels. Given this options data, if Nifty is able to move past and stay above 18,000 levels, it may see some short-covering from the current levels. In other words, Nifty’s behavior against the levels of 18,000 will be crucial to watch.

The volatility remained unchanged; India VIX rose by a negligible 0.21per cent to 17.8175.

Thursday is likely to see the levels of 18,000 and 18,195 acting as resistance points. The supports come in at 17,900 17,790 levels.

The Relative Strength Index (RSI) on the daily chart is 56.07; it has marked a new 14-period low which is bearish. RSI also shows a mild bearish divergence against the price.


The daily MACD is bullish and remains above the signal line. The pattern analysis shows that Nifty found a strong and fierce resistance at the trend line; this trend line is the extended neckline of the bearish head and shoulders formation that was seen on Nifty. The pattern analysis also confirms that the zone of 18,300-18,400 has now become a strong resistance zone for the markets.

Even in the weak markets, some pockets continue to show strong relative outperformance on the expected line.

This is expected to continue and it is likely that stocks from oil and gas space, financials, auto and select stocks from the broader universe may continue to relatively outperform the markets. It is recommended to keep the overall exposures at modest levels and markets should be approached on a highly selective note.

(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)