Technical View: Nifty forms strong bullish candle; trade long with stop below 10,600
The Nifty50 picked up the pace in the last one hour of the trading session to reclaim 10,700 levels on Thursday which made a strong bullish candle on the daily candlestick charts. Traders are advised to remain long on the index and trade with a stop below 10,600.
The index manages to register a breakout above 10,700 levels but Nifty rollovers stood at 58 percent which were slightly below 72 percent recorded in April expiry and were lower than the 3-month average of 67.3 percent.
Analyst advise investors to remain cautious because despite witnessing a breakout the broader market closed in red, and the advance-decline ratio was also largely skewed in favour of bears. Follow up buying is required for an index to sustain momentum.
The Nifty50 which opened at 10,670.15 slipped marginally to 10,620.40 before bulls took control of D-Street. The index hit an intraday high of 10,763.80 before closing the day 121.80 points higher at 10,736.15.
“Albeit Nifty50 registered a breakout above 10,717 levels it appears to be a move which is mostly propelled by expiry related factors. Hence, a follow-through buying in the next session is required to confirm real upward strength in Nifty50 as the advance-decline ratio was also largely skewed in favour of bears with almost 2 stocks declining for single stock which closed in positive terrain,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in.
“In case the strength continues next logical target for Nifty50 can be around 10,826 levels. In between, 10,777 may act as a supply point but if there is inherent strength present in the current move then eventually this hurdle should be cleared without any difficulty,” he said.
Mohammad further added that on the downsides if Nifty50 slips below 10,620 levels then once again short term trend shall turn sideways to negative. Hence, traders are advised to place a stop of 10,600 and remain on the long side of the trade.
The Nifty future closed with the gains of 1.11 percent at 10,736 while Bank Nifty closed with the gains of 7.78 percent in the entire May series. Options data is scattered at all the immediate strikes being the beginning of June Series.
On the options front, maximum Put OI is at 10,600 followed by 10,200 strikes while maximum Call OI is at 11,000 followed by 10,700 strikes. “We have seen Put writing at 10,600 followed by 10,400 strikes while Call writing is seen at 10,700 and then 10,900 strikes. Option data suggests a broader trading range in between 10,600 to 10,900 zones,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“The Nifty index managed to hold 10,620 zones and after an early consolidation, it headed towards 10,763 marks. It formed a Bullish candle on the daily scale as well as a weekly scale which indicates that bulls are holding the grip in the market,” he said.
Taparia further added that Nifty has to continue to hold above 10,650 zones to extend its gains towards 10,780 then 10,888 zones while on the downside supports are seen at 10,620 levels.