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Technical View: Nifty forms large bearish candle after MPC move; relief rally possible

October 05
19:29 2018

Bears continued to dominate on Dalal Street on Friday as the Nifty50 after gap down opening extended losses gradually and hit six-month low in late trade. The surprise move to hold repo rate by Monetary Policy Committee dampened traders sentiment.

The index lost more than 300 points intraday and closed sharply lower, making a large bearish candle on the daily as well as weekly charts.

The Nifty50 lost 6 percent for the week and shed over 12 percent from its record high touched on August 28, 2018.

Experts said the sharp fall in last few sessions indicated that there could be a relief rally in the coming week, but if it corrects further then it could break psychological 10,000 levels as well.

The Nifty50 after opening lower at 10,514.10 gradually extended losses as the day progressed to fall below 10,300 levels and hit an intraday low of 10,261.90 in late trade. The index closed 282.80 points down at 10,316.50.

“In line with projections Nifty50 continued its southward journey as it registered a large bearish candle before signing off the session. Even on weekly charts it’s a 5th consecutive Bear candle in a row suggesting market may be stretching more on the downside and hence can attract some relief rally going forward,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

He said logically to conclude its corrective structure Nifty50 should move below 9,950 levels.

“In between 10,300 is a decent support from where it recoiled in Friday’s session after hitting an intraday low of 10,261 levels. If this level is breached then the next target on downside shall be towards 9,950 below which there will bright chance of one corrective structure getting culminated,” he explained.

In case of a pull back attempt, he feels the initial hurdle can be expected around 10,550 levels. “If bulls manages a close above the said level then the relief rally can be expected to get extended upto 10,850 levels.”

India VIX moved up by 4.32 percent to 19.73 levels. Volatility is not cooling down which is not giving the relief to bulls and suggests a tight bear grip in the market, experts said.

India VIX surged by around 16 percent in this week and has been moving upwards from last three consecutive weeks.

On option front, maximum Put open interest (OI) is at 10,500 followed by 10,700 strike while maximum Call OI is at 11,000 followed by 11,200 strikes. Significant Call writing is at 10,500, 10,600, 10,700 and 10,800 strikes while Put unwinding is at all immediate strikes.

Now Put unwinding in 10,500 strike could propel more pressure to shift its band towards 10,200 zones. Option band signifies a shift in lower trading range with immediate hurdle at 10,500 and 10,650 zones.

“Nifty has been making lower highs – lower lows on weekly scale and fallen by around 1,500 points in last five weeks. It formed a Bearish candle on daily and weekly scale which suggests that bears are holding the tight grip on the market,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services said.

He further said now till the index holds below 10,500 zones, it may continue it extended weakness towards 10,200 and psychological 10,000 zones while on the upside medium term hurdle is shifting from 10,850 to 10,650 zones.

Now till it doesn’t surpass any immediate hurdle zones overall weak structure could limit the upside of the market, he feels.

Bank Nifty remained in a range in early hour of the session but fell down sharply post RBI’s Bi-Monthly policy meet and corrected towards 24,250 zones. It closed 376 points lower at 24,443.45.

“It has been making lower top – lower bottom on weekly scale and approaching towards its March 2018 lows of 23,600 zones. Now till it remains below 25,000 zones, it could continue its weakness towards 24,000 then 23,600 levels,” Chandan said.

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