Technical View: Nifty forms bearish candle; 10,600 crucial for bulls

May 03
17:29 2018

Bears gained control over D-Street from the word go and pushed the Nifty50 below its crucial psychological support level of 10,700 on Thursday making a bearish candle on the daily candlestick charts.

The Nifty50 closed tad below its crucial support placed at 10,680 which is also its 5-days exponential moving average (DEMA). The index opened at 10,720 and slipped to an intraday low of 10,647.45 to close 38 points lower at 10,679.

Formation of a bearish candle after a Bearish Belt Hold does not augur well for the bulls but as long as Nifty trades above 10,600 levels, bulls have nothing to fear, suggest experts. Investors can keep a stop below this level (10,600) for all the long positions.

“It was heartening to see Nifty50 registering a bearish candle which is similar to a Hammer kind of formation as it recoiled after testing the gap zone of 10,647 – 10,628 levels registered on the 27th of April,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

“This bounce is a vindication of the fact that the uptrend is still intact and as long as Nifty50 sustains above 10600 levels on the closing basis one can look for much higher targets placed towards 10900 levels. However, in between recent high of 10,784 can act as a resistance and once that is conquered on closing basis momentum in the index shall pick up in no time,” he said.

Mohammad further added that interestingly Bank Nifty appears to be the on the verge of a big move which shall aid Nifty50 to clear the said resistance paving the way for a bigger move in Nifty50. “Hence, it looks prudent for the traders to make use of the dips to create fresh longs with a stop below 10600 on a closing basis,” he said.

India VIX moved up by 1.13 percent at 12.98. VIX has to remain below 13.50 zones to get stability else some profit booking decline could be seen.

On the options front, maximum Put OI is placed at 10,500 followed by 10,600 strikes while maximum Call OI is placed at 11,000 followed by 10,800 strikes. Fresh Put writing at 10300 and 10600 strikes while Call writing is seen at 10900 and 10800 strikes.

“Option data suggests an immediate trading range between 10,600 to 10,800 zones. It formed a Bearish candle and closed negative for the second consecutive session. The index has seen consolidation breakout from its trading range of 10500 to 10638 zones in the last week and now the previous hurdle could act as a support to again get the positive momentum,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Now it has to hold above 10,638 to witness an up move towards 10,780 then 10,800 zones while below 10,638 it could start further weakness towards 10,550 and 10,500 zones,” he said.

Taparia further added that Nifty is in the process to make a Bearish or a Spinning top candle on the weekly chart so Friday’s movement could be meaningful to get the next course of action to decide the trend.

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