Trade setup: Short-covering led Nifty rebound; dont chase this momentum

In Thursdays rangebound trade, the headline Nifty50 swung nearly 100 points on either side before ending the day with minor gains. The session remained very much on expected lines as Nifty did not see any runaway rise but at the same time, played to the tunes of weekly expiry of the index options.

The market saw a negative opening and then drifted lower as the session progressed. However, in the second half of the day, the index recovered all its losses on the back of short covering fueled by the expiry of weekly options.

Going into Friday's trade, make sure not to get carried away by the short covering-led rally we saw on Thursday. These are classic symptoms of distribution happening at higher levels, and the market breadth continues to remain negative. These factors can potentially push the market into some corrective moves going forward.

Though a flat start is likely on Friday, the 11,950 and 12,000 levels would continue to act as strong resistance points. Supports, on the other hand, may come in at 11,810 and 11,750.

The Relative Strength Index (RSI) on the daily chart stood at 56.4438. It remained neutral and did not show any divergence against price. The daily MACD has shown a negative crossover; it is now bearish and trades below the signal line. Apart from a white body candle that emerged on the candles, no important formations were noticed.

Pattern analysis of the daily charts showed Nifty has taken support at its short-term 20-DMA. This level might act as short-term support, and any breach on the downside will make Nifty weaker.

With signs of distribution happening at higher levels, it would be wise not to chase the momentum on the upside. The weekly options data Read More – Source

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