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Monday, March 1, 2021

Trade Setup: Weekly F&O expiry to dominate trade, limit exposure

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In a relatively resilient session on Wednesday, the domestic equity indices staged a rangebound move before ending the day with a modest cut. Following overnight weakness in global markets, the Indian indices saw a weaker start. After opening in the negative, Nifty plunged to the day’s low of 11,185 by afternoon. The indices spent the second half of the session recovering from those levels. Despite staying range-bound throughout the session, Nifty recovered nearly 100-odd points from the low. The headline index finally settled with a net loss of 39.35 points, or 0.35 per cent.

What we saw in the past couple of days in form of a sharp correction was mean reversion of the market. The market, which had deviated too far and got overstretched on key technical indicators, reverted to mean through a sharp correction. On Wednesday, Nifty bounced from near the 50-DMA, which currently stands at 11,154, and this remains a crucial support on a closing basis.

Volatility remained under check as volatility index, INDIA VIX, declined marginally by 2.17 per cent to 22.2300.

On Thursday, Nifty is likely to see a shaky start. Any pullback in the Dollar Index may have some mild effect on the domestic market, though it will be good for IT stocks. Thursday’s session will see Nifty hit the key resistance points at 11,310 and 11,385 levels, while support will come in at 11,230 and 11,180 levels.

A19ET CONTRIBUTORS

The Relative Strength Index, or RSI, on the daily chart stood at 48.17. It showed a bearish divergence against price as it formed a new 14-period low. The daily MACD remains bearish and trades below the signal line. No important formations were seen on the candles.
Pattern analysis shows Nifty well below the Double Top resistance point of 11,430. The index has bounced back from near the 50-DMA and this remains a crucial and immediate support. As of now, the index trades above all its key moving averages.

All in all, Thursday’s proceedings are likely to be dominated by the expiry of weekly options. Open interest built up in the Call Options of strike prices 11,400 and 11,500 while the 11,500 level held the maximum Call OI. Highest Put Open Interest was at 11,000 level followed by 11,200. There are chances that the index will oscillate in a defined range for the day. We recommend avoiding any excessive exposure. It would be prudent to ward off weekly expiry through limited exposures and guard profits strictly on either side.

(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])

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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