Technical Analysis

Nifty call: Go short with initial stop-loss at 16,410

Akhil Nallamuthu |BL Research Bureau | Updated on: May 27, 2022

Supports are at 16,000, 15,880; resistances 16,400 and 16,600

Nifty 50 June Futures (16,250)

Overnight, the US market closed with considerable gains – Dow Jones (32,637) was up by 1.6 per cent and the broader index S&P500 (4,056) was up by 2 per cent. The Asian markets are trading in the green since morning – major indices like Nikkei 225 (26,780), ASX 200 (7,184), Hang Seng (20,644) and KOSPI (2,636) are up between 0.7 and 2.7 per cent so far.

The positive sentiment in the global equity markets led to a bullish opening in the domestic market. Both the Nifty 50 (16,275) and the Sensex (54,595) began the day with a gap-up opening. Though losing initial gains, they are still up by 0.7 per cent each.

Substantiating the positive direction, the advance/decline ratio of the Nifty 50 index stands at 36-14. Mid- and small- cap indices too have been rallying today. For instance, the Midcap 50 is up by 1.2 per cent and Smallcap 50 is up by 1.5 per cent.

The volatility seems to have dropped i.e., India VIX – the volatility index – is down by 3.5 per cent to 21.90. Further, all the sectoral indices, barring the Nifty Oil & Gas (down by 1.2 per cent), have gone up today. The Nifty Media, up by 1.8 per cent, and the Nifty Private bank, up by 1.6 per cent, are the top gainers. With the broad-based buying happening today, there is a likelihood of the market closing positively.

Futures: Following the gap-up opening in the underlying Nifty 50, the June futures opened higher at 16,300 compared to yesterday’s close of 16,168. It rallied to an intraday high of 16,323 before moderating to trade at 16,250.

Although the sentiment has been positive since morning and certain factors indicate a broad-based buying, the Nifty futures has been trading within the range of 15,750–16,400 for nearly three weeks. At 16,250, it is hovering near the top of the range. Technically, the upside potential look limited. A breach of 16,400 can result in a swift rally to 16,600. But the breakout is yet to happen.

Considering that the contract is near the upper end of the range, traders can risk initiating shorts. Go short at the current level of 16,250 and add shorts when the price rallies to 16,360 for intraday. Place the stop-loss at 16,410. When the contract touches 16,000, liquidate half of the shorts and tighten the stop-loss to 16,150. Exit the remaining at 15,900.

But, one can consider going long, if the resistance at 16,400 is decisively breached. Above 16,400, go long with stop-loss at 16,280 for a target of 16,600.

Strategy: Short at the current level of 16,250 and add shorts when price rallies to 16,360 for intraday. Place stop-loss at 16,410. When the contract touches 16,000, liquidate half of the shorts and tighten the stop-loss to 16,150. Exit the remaining at 15,900.

But if the resistance at 16,400 is decisively breached, go long with stop-loss at 16,280 for a target of 16,600.

Supports: 16,000 and 15,880

Resistances: 16,400 and 16,600

Published on May 27, 2022
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