The corrective move caused Nifty to come off over 270 points from its high point. After taking a hard knock, the headline index ended the day with a cut of 165.70 points, or 1.58 per cent.
Weekly options as well as June series F&O contracts expire on Thursday. Rollovers will continue to dominate market trend during the day. Options data showed the 10,500 level continued to hold maximum Call OI concentration. In the event of any negative opening, there is a possibility that this resistance point would shift lower. Volatility also increased marginally, as volatility index INDIA VIX rose 0.81% to 29.5775.
Thursday’s session is likely to see a soft start. The 10,350 and 10,395 are likely to act as key overhead resistance, while supports will come in at 10,210 and 10,165 levels. Any extension of the corrective move is likely to widen the trading range.
The Relative Strength Index (RSI) on the daily chart stood at 62.52. It remains neutral over the 14-day period, but shows a distinct negative divergence against price if we subject it to pattern analysis. The daily MACD remained bullish, as it traded above its signal line.
An Engulfing Bearish Candle has emerged on Nifty chart. The appearance of such a candle during an up-move and below the resistance point makes it potent enough to potentially exhaust the current rally.
Pattern analysis showed while Nifty was marking a higher tops, the RSI did not do so. Being a lead indicator, this showed a distinct bearish divergence. The occurrence of the Engulfing Bearish candle even before the index reaches the upper trend line of the channel makes it bearish signal, until it reverses to correct this move.
All in all, even if the market sees an expiry-led move on the upside due to short covering, avoid chasing any upward momentum untill Nifty moves past the previous high on the daily chart. The index will continue to face selling pressure at higher levels.
While avoiding aggressive bets and staying light on overall exposure, investors should adopt a cautious approach for the day.
(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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