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Technical View: Nifty forms Bearish candle; banks may help Nifty reclaim 10,800 soon

July 05
18:29 2018

Bears managed to regain control of the Dalal Street after a rollercoaster ride on Thursday, with the Nifty50 closing mildly in the red as globally investors remained cautious ahead of implementation of tariffs by the US and China on Friday.

The index failed to hold on to 10,750 levels and formed a bearish candle pattern on the daily charts which also resembles a small Bearish Belt Hold kind of pattern.

A ‘Bearish Belt Hold’ pattern is formed when the opening price becomes the highest point of the trading day (intraday high) and the index declines throughout the trading day making up for the large body. The candle will either have a small or no upper shadow and small lower shadow.

The 50-share NSE Nifty after opening at 10,786.05, which was also an intraday high, traded in a range of 60 points throughout the session and hit a day’s low of 10,726.25, before closing 20.10 points lower at 10,749.80.

The consolidation indicates that index could move on either side but today’s positive move in the Bank index suggested that banks may help Nifty reclaim 10,800 soon, experts said.

“It appears to be a day of consolidation on the bourses as Nifty50 moved in a narrow range of 60 points before signing off the session with a bearish candle. This kind of narrower price moves suggest that the indices are preparing for a bigger upswing in either of the direction,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.com.

He said however, considering the fact that Bank Nifty is holding on to its ground firmly and appears to be heading to higher levels, it is quite possible that Nifty50 can eventually catch up and initially registers a breakout above its downsloping trendline whose value is placed around 10,800 kind of levels. “Such a breakout shall further strengthen the bullish sentiment.”

On the downside, it is still critical for Nifty50 to sustain above 10,600 levels breach of which shall dissipate all hopes of bulls, Mohammad said.

India VIX fell 0.41 percent to 12.60 levels. Lower volatility indicates limited downside and decline is being bought in the market.

On the option front, maximum Put open interest (OI) was seen at 10600 followed by 10,500 strike while maximum Call OI was at 11,000 followed by 10,800 strike.

Put writing was seen at 10,700 while Call writing was seen at 10,800 and 10,900 strike. Option band signifies an immediate trading range between 10,660 to 10,835 zones, experts said.

“Nifty index opened positive but failed to hold above 10,777 zones and remained consolidative with intraday support of 10,740 zones. It closed negative with the loss of around 20 points but continued its formation of higher lows for third session,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.

He said the index formed a small Bearish Belt Hold candle and needs to hold above 10,777 zones to extend its move towards 10,835 then 10,888 zones while on the downside supports are seen at 10,700 then 10,660 zones.

Bank Nifty extended its gains towards 26,600 zones and managed to close near to 26,500 levels. It formed a Spinning Top Candle on daily scale which suggests range bound bias in the market, Tapria said.

Now it has to continue to hold above 26,500 zones to witness an up move towards 26,750 zones while on the downside support exists at 26,250 then 26,100 levels, he added.

Mazhar Mohammad said 26,800 appears to be key resistance point and breach of which shall facilitate new highs in Bank Nifty.

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