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Trade setup for May 25: Is a pullback on the cards before Nifty approaches 16,000?

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Trade setup for May 25: Is a pullback on the cards before Nifty approaches 16,000?


Trade setup for Wednesday, May 25: Pullbacks may be on the cards for the Nifty50 but the trend remains negative, say experts. Here's what the technical charts suggest.

Trade setup for May 25: Is a pullback on the cards before Nifty approaches 16,000?
Equity benchmarks failed to hold on to the green for yet another day amid volatile trade on Dalal Street. Losses in IT and FMCG shares pulled the headline indices lower, though gains in financial and oil & gas scrips limited the downside.
The India VIX — known in market parlance as the fear index — surged
9.6 percent to settle at 25.6, its biggest jump of the month so far.
What do the charts suggest for Dalal Street now?
The Nifty50 has formed a bearish candle on the daily chart, suggesting more weakness in the near future, according to Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities.
"As long as the index is below 16,250, a correction wave is likely to continue that may make it retest levels of 16,000-15,050. On the flipside, after a breakout above 16,250, the index could move up to the 16,325-16,375 zone,” he said.
More downside on the cards
The 50-scrip index has made a negative moving average crossover with its 20-period level sliding below the 50-period one, said Subash Gangadharan, Senior Technical and Derivative Analyst at HDFC Securities. 
"This indicates weakness. Traders will now need to watch if the Nifty can hold above immediate support at 16,078. Else, we could see further correction," he said.
Here are key things to know about the market before the May 25 session:
SGX Nifty
Singapore Exchange (SGX) Nifty futures — an early indicator of the Nifty index— rose as much as 49.5 points or 0.3 percent to 16,148.5 early on Wednesday, suggesting a higher opening ahead on Dalal Street.
Global markets
Equities in other Asian markets largely moved in positive territory on Wednesday, shrugging off a mixed session on Wall Street overnight, though global growth concerns and weak US data kept investors on the back foot. MSCI's broadest index of Asia Pacific shares outside Japan was up half a percent in early hours.
China's Shanghai Composite and Hong Kong's Hang Seng were up 0.5 percent each, South Korea's KOSPI 0.7 percent and Singapore's Straits Times 0.1 percent, but Japan's Nikkei 225 down 0.1 percent.
S&P 500 futures were up 0.5 percent. On Tuesday, the S&P 500 and the Nasdaq fell 0.8 percent and 2.4 percent respectively amid fears that aggressive rate moves might tip the US economy into recession. The  Dow eked out a gain of 0.2 percent.
What to expect on Dalal Street
HDFC Securities' Gangadharan remains open to further pullback rallies in the very near term, but warns that its intermediate trend continues to be negative. "The bears will gain more control once the recent intermediate low of 15,735 is broken," he said.
The Nifty50 is more than 1,100 points below its long-term simple moving average in a bearish sign. It is only above the 10-period level. 

Period (No. of sessions)

Simple moving average
Rupak De, Senior Technical Analyst at LKP Securities, expects near-term resistance for the index at 16,400, and support in the 16,000-16,020 zone.
"Volatility may continue over the near term. Any decisive breakout above 16,400 may induce a strong directional move in the market," he said. 
FII/DII activity
Call/put open interest
The maximum call open interest is accumulated at the strike price of 17,000, with 1.8 lakh contracts, and the next highest at 16,500, with 1.7 lakh, according to exchange data. On the other hand, the maximum put open interest is placed at 16,000, with 1.8 lakh contracts, and the next at 15,500, with 1.3 lakh.
This suggests immediate resistance at 16,500 and strong support at the 16,000-mark
Long build-up
Here are three stocks that saw an increase in open interest as well as price:
StockCurrent OICMPPrice change (%)OI change (%)
Long unwinding
StockCurrent OICMPPrice change (%)OI change (%)
(Decrease in open interest as well as price)
Short covering
StockCurrent OICMPPrice change (%)OI change (%)
(Increase in price and decrease in open interest)
Short build-up
StockCurrent OICMPPrice change (%)OI change (%)
(Decrease in price and increase in open interest)
52-week highs
Two stocks on the BSE 500 — the broadest index on the bourse — hit 52-week highs: Adani Power and KSB.
52-week lows
A total of 29 scrips hit 52-week lows.
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