Following an overnight weak closing of the US market, headline index Nifty started on the backfoot with a modestly gap down opening. The index then slipped a bit more into the negative to form the low point of the day in the morning. However, from there on, Nifty started to recover. While counting for a minor blip in the afternoon, it went on to rebound over 150 points from the intraday low. The headline index finally ended the day with a net gain of 66.60 points, or 0.47 per cent.
The analysis for Wednesday’s session remains much on the existing lines. The session is likely to be governed by the weekly options data. The level of 14,100 saw maximum amount of Put writing during the day. However, the strike of 14,000 continues to hold the highest Put OI despite a massive attempt to drag supports a bit higher. 14,300 strike had over 1 million Calls. The maximum Call OI stood at 14,500. We are set to see a trending market on either side within a defined range in the coming session. Volatility continued to rise as India VIX inched higher by another 2.14 per cent to 20.4300.
Wednesday’s session is likely to see the levels of 14,260 and 14,295 acting as resistance points, while support will come in at 14,110 and 14,000 levels.
The Relative Strength Index (RSI) on the daily chart is 76.83; it stays overbought while showing a mild negative divergence against price. The daily MACD is bullish as it trades above the Signal Line. A bullish engulfing candle has occurred on the charts. However, since it has occurred near the high point, it should be ignored as it is irrelevant given the present technical setup.
As the market has ended near its high point, the possibilities of some incremental move cannot be ruled out if there are no negative overnight cues to deal with. The strong undercurrent is reflected in the F&O data as all the up moves are coming with decent additions in Net Open interest and this shows creation of fresh longs with every rise.
However, this does not undermine the overextended texture of the market. Nifty remains vulnerable to profit taking bouts at current or higher levels. We recommend avoiding shorts and continuing to follow the momentum with a highly cautious and stock-specific approach.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)