Trade setup: Nifty50 needs fresh buying to extend this rally

The market continued to see technical pullback for the third straight session, as NSE Nifty ended on a strong note on Thursday. After witnessing a quiet start to the day, the morning trade saw the index staging a smart rally, which took the benchmark past the 8,700 level. However, it soon came off day’s high. For the remaining part of the session, the index oscillated in a wide 200-point range and finally ended 323.60 points or 3.89 per cent higher at 8,641.45.

The session was dominated by rollovers. The 8,500 strike continued to see a concentration of maximum Put and Call open interest, which shifted mildly towards the end.

Although the trading range stayed wider on the expected lines, the volatility reduced, as India VIX declined further by 7.85 per cent to 71.53. Nifty continuing the pullback or slipping into a broad consolidation zone will depend upon the index’s ability to keep its head above the 8,550 level.

The domestic market is likely to see a quiet start, with 8,710 and 8,800 levels acting as resistance. On the lower side, support may come in at 8,550 and 8,365. In the event of any corrective move, the day’s range is expected to remain wider than usual.



The Relative Strength Index (RSI) on the daily chart stood at 35.74 and marked a fresh 14- period high, which is bullish. The RSI remained neutral, showing no divergence against the price. The daily MACD stayed bearish as it traded below its signal line. However, the downside momentum was decelerating, as evident from the Histogram, which appears to be narrowing its width.

Nifty has surged over 1,100 points from the recent lows. However, it is evident from the F&O data that the pullback has been solely on the back of massive short covering, and this remains a concern. Nifty remains vulnerable at current levels if the short covering is not replaced with fresh buying.

There is no doubt that the market has attempted to find a bottom. However, a confirmation is awaited, and that would depend upon Nifty’s ability to keep its head above 8,550 in the near term. Rather than pre-empting the confirmation, we would strongly recommend traders to wait, as a slip below 8,550 will make the market to consolidate in a broad range.

(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)