Technical View: Nifty forms Inside bar pattern, 10,736 crucial for bulls
The Nifty50 which started on a flat note followed by small correction managed to gained strength in the morning itself and remained in a tight range on the higher side for rest of the session but failed to hold 10,700 levels.
The index formed a small bullish candle as the closing price was higher than the opening level and also an inside bar kind of pattern on the daily charts.
An inside bar pattern is formed when index trades within the high and low range of the previous day (Monday) which means that the index traded inside the trading range of the previous day. It is a two candlestick price pattern.
The Nifty opened above its previous closing levels at 10,668.60 but the correction in Asian peers forced it to hit an intraday low of 10,630.25. The follow through buying and recovery in Asian counterparts then helped it regain strength in the morning itself to hit an intraday high of 10,713.30 before it finally closed 42.60 points higher at 10,699.90.
The index recovered 70 points from day’s low to close above 50-DMA of 10,694.
Despite today’s recovery, the index is still in favour of bears, experts said, adding it needs to close above 10,736 levels to show some strength.
“Nifty index formed an inside bar pattern on daily scale as it traded in the trading range of last session. It formed a small Hammer candle with the support near to its 50-DEMA,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.
He feels now it has to continue to hold above 10,660 zones to witness an up move towards 10,770 then 10835 levels, while on the downside supports are seen at 10,600 and 10,550 zones.
Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan also told Moneycontrol that the Nifty which traded within the last session’s trading range resulted in an Inside bar formation whereas the last session was a bearish Outside bar. “This makes the swing high of 10,736 a crucial hurdle on closing basis.”
He said on the flip side, breakout level for the Inside bar is at 10,604. “Overall set up suggests that today’s move was nothing but a minor degree bounce & the overall outlook continues to be in favour of the bears.”
“In terms of the wave structure, we are witnessing subdivisions on the way down. By the time the subdivisions resolve themselves, the index can tumble down to test the May low of 10,417 with potential to slide down to lower levels,” Ratnaparkhi said.
India VIX fell down up by 2.77 percent at 13 levels. Lower volatility indicates limited downside and decline is being bought.
On the option front, maximum Put open interest (OI) was seen at 10,600 followed by 10,500 strike while maximum Call OI was at 11,000 followed by 10,800 strike. Put writing was seen at 10,600 followed by 10,700 while Call unwinding was seen at immediate strike price. Option band signifies an immediate trading range between 10,600 to 10,750 zones.
According to Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, in the next trading session if bulls manage to push Nifty50 beyond 10,736 levels on closing basis then some strength can build up in the indices either to sustain above 10,600 levels or to eventually clear the resistance placed around 10,830 levels going forward.
Traders are advised to selectively look for opportunities with a stop below 10,600 on closing basis, he said.
Bank Nifty formed a Doji kind of candle and remained dull in broader trading range of 150 points. It has been making lower high from last six trading sessions and required to negate this pattern to cheer the bulls.
“Now it has to hold above 26,250 to witness an up move towards 26,500 zones, while on the downside support exist at 26,100 then 25,950 levels,” Taparia said.