Markets

Trade Setup: 11,300-11,430 critical resistance levels for Nifty, protect profits at higher levels

For the second day in a row, the domestic equity market continued to consolidate below important resistance levels before ending the day with marginal gains. The market opened on a quiet note and traded flat for the initial few minutes before slipping into negative territory to mark the low point of the day. It soon crawled back in the positive territory and after that, it stayed within a defined range for the rest of the session.

Nifty oscillated in a very limited range and refused to take any directional call. The headline index finally ended with a minor gain of 25.15 points 0.22 per cent.

Besides having the weekly options expiry, Thursday will also be the last trading day of the week as Friday is a trading holiday on observance of Gandhi Jayanti.

The level of 11,200, which has seen significant amount of Put writing, is likely to extend some support to the market. The level of 11,000 holds the highest Put OI followed by 11,200, while maximum Call OI is seen at 11,400 followed by 11,500. Nifty is below its 50-DMA and this level will continue posing resistance on a closing basis.

nifty

Thursday’s session is likely to see the levels of 11,320 and 11,400 acting as immediate resistance points, while support will come in at 11,200 and 11,060 levels.

The Relative Strength Index (RSI) on the daily chart stood at 48.78. The RSI remains neutral and does not show any divergence against price. The daily MACD stays bearish and below its Signal Line. A spinning top occurred on the candles. No other formations were noticed apart from this one which indicates lack of directional bias among the market participants.

Pattern analysis showed that Nifty has dragged its resistance points lower, following a failure to move past and sustain above the double top resistance level of 11,430. In the event of any continued up move in the market, this level will pose serious resistance. As Nifty remains below its 50-DMA, which is presently at 11,306, the 11,300 level is crucial in the immediate short-term.

This makes the 11,300-11,430 zone a critical resistance level for the market. Unless this zone is taken out convincingly the market is unlikely to show any sustainable up move. All up moves leading to this zone will encounter profit taking bouts at higher levels.

There is a clear shift in risk tolerance level of market participants. The weak US Dollar Index and preference for less risky and low beta stocks will see stock specific moves in defensive quarters. We recommend traders to approach the
market cautiously with vigilant protection of profits at higher levels.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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