Trade Setup: Nifty50’s move past 20-DMA level crucial for sustaining momentum

As expected, Nifty50 continued its up move on Thursday. After opening with gains, Nifty50 gave up the bulk of its gains in the morning session; however, it continued to stay in the green. The afternoon trade saw the index recovering from the day’s low point. Nifty50 not only recouped the lost levels but also marked a fresh incremental high point of the day. It did come off from those levels but spent the remaining day in a capped range. The headline index finally closed with a net gain of 117.15 points (+0.69 per cent).

While the markets extended their gains, the session remained in line with the weekly options expiry data. The highest Call OI accumulation that was seen at 17200 came down to 17100, thus stopping Nifty’s advance below 17100. Furthermore, the index has also tested its small pattern resistance which exists near 17150. However, we may see the markets entering into some short-term turbulence zone which may cause the index to consolidate. The nearest important level for Nifty50 to tackle will be the short-term 20-DMA which presently stands at 17148. Unless Nifty50 moves past this level, it remains vulnerable to some consolidation once again.

Friday is likely to see a quiet start to the day. The levels of 17150 and 17230 will act as immediate resistance levels. The supports come in at 17065 and 17000 levels.

The Relative Strength Index (RSI) on the daily chart is at 45.13; it remains neutral and does not show any divergence against the price. The daily MACD is bearish and below the signal line. However, the slope of the histogram is narrowing and this may take the indicator towards a positive crossover over the coming days.

Nifty50 formed a spinning top candle on the daily chart. Such kind of formation shows the indecisive behavior of market participants. A rising window also occurred because of a gap. Usually, such formations resolve with a continuation of the prior trend; however, this will need confirmation on the charts.
All and all, the level of 16410 has marked itself as a most immediate short-term bottom for the markets. Nifty50 has neared the resistance zone; it would be very crucial to see how the index behaves near the 20-DMA which presently stands at 17148. It is reiterated that shorts should be avoided and all downside moves should be utilized to make select purchases. A cautiously positive approach is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at [email protected])