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Technical View: Profit booking hits D-Street above 10,700; Nifty forms bearish candle

May 29
17:29 2018

The Nifty50 witnessed selling pressure for the consecutive day in a row above 10,700 on Tuesday. It formed a bearish candle on the daily charts but is trading above most of its crucial short-term moving averages.

The trend still remains on the upside as long as Nifty holds 10,700 on a closing basis, suggest experts. Being expiry week, large swings can be expected on either side; hence, traders are advised to trade with caution.

On the downside, crucial support is placed at 10,550 levels while on the upside, Nifty is likely to witness resistance around 10,735 levels.

The Nifty50 which opened at 10,689 rose to an intraday high of 10,717 but then bears took control and pushed the index below 10,650 levels. The Nifty hit an intraday low of 10,616 before closing the day at 10,633, down 55 points.

“It appears to be a day of profit booking on the bourses, after strong gains witnessed in the preceding three sessions, owing to which market registered a bearish candle which engulfed Monday’s bullish candle body,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Unless 10,700 is decisively cleared in the next trading session, upsides can get capped around these levels with an initial downside target placed around 10,500 levels. However, on short-term charts as critical supports are not yet broken bulls can slightly remain optimistic and sustaining above 10,600 in next session they can still have a window of opportunity for a comeback,” he said.

Mohammad further added that in case 10,700 is cleared on closing basis then the index could head to test its interim top of 10,929 levels. Till a clear-cut directional move arises traders are advised to take a neutral stance for time being.

India VIX remained flattish to close at 13.12 levels. A lower VIX even after the market fall suggests that decline could be bought again.

On the options front, maximum Put OI is intact at 10,500 followed by 10,600 strikes while maximum Call OI is placed at 10,800 followed by 10,700 strikes.

Put unwinding was seen at immediate strike prices while significant call writing is placed at 10,700 and then towards 10,650 strikes which restricts its upside move.

“Options data suggests a trading range between 10,550 to 10,750 zones. The Nifty index formed a Bearish Engulfing pattern on the daily scale as covered the entire movement of the last candle and closed below opening price of the previous session,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Overall price setup suggests a range bound move with limited upside as well as the downside, so it has to hold the support of 10,550 zones to consolidate in between 10,550 to 10,735 levels for the next few sessions,” he said.

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