Trade setup: Volatility may rise; stay cautious, avoid aggressive buying – Economic Times

Trading entirely on the anticipated lines, the Indian market stepped into the New Year on a tepid note and spent the day in a capped range. The market saw a better-than-expected opening, but failed to capitalise on the positive opening. After a steady start to the day, Nifty gradually gave up the gains to trade flat by afternoon time.

After that, Nifty did not take any directional call and spent the second half of the session in a narrow range. The headline index ended the day with a minor gain of 14.05 points, or 0.12 per cent.

Along with the Indian market, Saudi Arabian stock markets were the only ones that traded on Wednesday. Other markets, along with the US markets are shut for the New Year’s day. Because of this, we will have no overnight cues to track on Thursday morning.

After Wednesday’s trade, Nifty has shifted its resistance points lower again between 12,200 and 12,250 levels and it is not expected to see any runaway rise beyond this zone.

On Thursday, Nifty is likely to see 12,230 and 12,265 levels act as resistance points. Supports will come in lower at 12,130 and 12 050 levels. The upsides will remain capped, but any move on the downside will make the trading range wider than usual.

The Relative Strength Index (RSI) on the daily chart stood at 56.32; it remains neutral and does not show any divergence against price. The daily MACD is bearish and trades below the signal line. Apart from a black body, no other formations were seen on the candles.

Pattern analysis showed that after breaking out above the 12,103 level and suffering a throwback to those levels, Nifty resumed its up-move but currently, it looks exhausted at higher levels.

Weekly options data had some insights to offer in Wednesday’s trade. For most of the day, the strike price at 12,200 level had a built-up of near-similar Call Open Interest and had a maximum Put OI as well. By the end, the 12,300 strike also saw some Call OI buildup, while the 12,100 level witnessed an increase in Put OI.

From the F&O data, it looks like in the event of any up-move, Nifty will have limited upsides. However, if it moves lower, support might shift lower from 12,200 to 12,100 levels. This data also points out that if Nifty does not take any directional bias, it will lead to some increase in volatility as well. Stay cautious and avoid making aggressive purchases during any dips.

(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)