Trade Setup: Nifty above all moving averages now; no sign of weakness

In a yet another buoyant session, Nifty on Thursday had a trending day as weekly options expired, as went on the end the session with gains. The market saw a positive start and traded in a rising trajectory throughout the session. After a sharp up-move in the first half, the market spent a major part of the second half in a sideways trajectory. However, the last hour of the trade saw further improvement and Nifty managed to end near its high point.

The benchmark index ended with a net gain of 82.85 points, or 0.74 per cent.

Expiry of the weekly options evidently dominated the trend. The highest Call open interest concentration shifted higher from 11,200 levels, enabling Nifty to settle above that mark. While the market remains mostly overbought, it is not showing any sign of giving up despite range-bound sessions on an intraday basis.

Since Nifty traded near the higher end of the upward rising channel, it needs to be followed cautiously. India VIX declined modestly by 0.98 per cent to 24.6400.

Friday’s session is likely to see an uneventful start and the 11,250 and 11,295 levels will act as key resistance, while supports will come in at 11,145 and 11,030 levels.

The Relative Strength Index or RSI stood at 72.91 level on the daily chart. It has marked a fresh 14-period high, which is a bullish indication. The RSI remains neutral, as it does not show any divergence against price, and trades in the overbought territory. The daily MACD remains bullish, as it trades above the signal line. A White Body emerged on the candles, signalling that the market closed higher than where it had opened. No other formations were noticed.

While trading above all its key moving averages, Nifty is moving towards the higher end of the upward rising channel in which it is currently placed. The current technical structure shows although there are no sign to indicate weakness, the market is a bit overstretched at this juncture. This would mean Nifty may continue to inch higher and make incremental highs, but all such up-moves may remain capped and vulnerable to selloffs at higher levels.

On the other hand, any corrective move will make the trading range wider than usual. We recommend approaching the market with caution, while avoiding excessive long exposure at current levels. Guard profits at these levels.

(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)