Technical View: Nifty50 forms strong bullish candle; keep a stop below 10,600
The Nifty50 which started with a gap on the higher side reclaimed its crucial resistance level of 10,700 on Monday to close near its intraday high making a strong bullish candle on the daily candlestick charts.
Formation of a strong bullish candle after three consecutive bearish candles suggests that we could have made an intermediate bottom, but a firm close above 10,780 could put bulls back in driver’s seat. Investors who are long in the index should keep a stop below 10600.
The Nifty 50 finally negated formation of lower highs and lower lows formation on a daily scale which means buying was witnessed at lower levels.
The index which opened at 10,653.15 rose to an intraday high of 10,725.65. It slipped to an intraday low of 10,635.65 to close at 10,715.50, up 97.25 or nearly 1 percent.
“Bulls appear to have made a strong come back as Nifty50 registered a solid bullish candle after testing the critical support levels of 10,600 in last Friday’s session. This up move not only negated bearish formations registered last week but also appears to have resumed fresh leg of the upswing from recent lows of 10,601,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“The current up move is broad-based with wider participation from multiple sectors like autos, FMCG, metals and PSU Banks. The Nifty50 can be expected to clear its immediate hurdle of 10,785 levels and head towards its logical target of 10,928,” he said.
Interestingly, Bank Nifty registered a fresh breakout which has opened up the possibility of a bigger upswing in this index with initial targets placed in the zone of 26,200 – 26,300 levels.
Mohammad further added that fresh breakout in Bank Nifty should assist the bulls in taking Nifty50 towards much higher levels. “Hence, traders are advised to continue with their long positions with a stop below 10600 on a closing basis and look for much bigger targets,” he said.
India VIX moved up by 2.94 percent at 13.64. 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 was seen at 10,600 and 10,700 strikes while Call unwinding is seen at all immediate strike prices which give room for further up move. Option data suggests an immediate trading range between 10650 to 10850 levels,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“The Nifty50 index negated it lower highs – lower lows formation on the daily scale and formed a Bullish Candle which means buying was witnessed at lower levels,” he said.
Taparia further added that till it holds above 10,680, it can extend its up move towards 10,780 and then towards 10,800 zones while a hold below 10,680 could drag it towards 10,638 and then towards 10,600 zones.