The Nifty call: Stay on the fence now

Akhil Nallamuthu | | Updated on: Aug 03, 2022

Nifty 50 August Futures (17,260): Initiate fresh trades in the direction of the break in the range of 17,240-17,400

Taking positive cues from the Asian market, the Indian benchmark indices opened slightly higher. However, they could not produce a follow-through rally and started to decline. The Nifty 50 at 17,240 and the Sensex at 57,840 are down by 0.5 per cent each till now.

Among the Asian majors, barring the ASX 200 (down by 0.3 per cent), others like Nikkei 225, Hang Seng and KOSPI are up between 0.5 and 0.9 per cent.

The market breadth of the Nifty 50 is indicating a bearish bias as the advance/decline ratio is at 9/41. All the mid- and small-cap indices too are down, losing between 0.6 and 1.5 per cent. Similarly, all the sectoral indices, except the Nifty IT (up by 0.8 per cent), are in the red.

The Nifty Auto, down by 1.8 per cent, is the top loser. Therefore, the sell-off seems to be broad-based. Further supporting the bearish inclination is India VIX — the volatility index — which is up by nearly 3 per cent.

Futures: Like the underlying Nifty 50, the August futures of the index opened today’s session marginally higher at 17,360 versus yesterday’s close of 17,346. But then, it declined and is currently hovering around 17,260.

While the inclination is clearly bearish, the price action in the last couple of days shows that the contract is now oscillating in the range of 17,240-17,400. So, the Nifty futures should move out of this range for us to assume the next leg of the trend. As it stands, the likelihood of a break below 17,240 looks highly likely. In such a case, the contract can decline to 17,100 and then possibly to 17,000.

On the other hand, if the contract rallies and breaks out of 17,400, it can rally to 17,500, the nearest resistance. Subsequent resistance is at 17,600. Considering the above factors, traders can stay on the fence now and initiate fresh trades in the direction of the break in the range of 17,240-17,400.

Strategy: Stay on the fence now and initiate fresh trades in the direction of the break in the range of 17,240-17,400.

Supports: 17,240 and 17,100.

Resistances: 17,400 and 17,500.

Published on August 03, 2022
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