Technical View: Nifty forms a strong bearish candle; use rallies to go short

February 08
19:29 2019

The Nifty50 remained in the grip of bears throughout the trading session. It closed below its crucial 5-days exponential moving average placed at 10,967 and made a strong bearish candle after forming a Doji candle which suggests a possible reversal in the trend.

The 5-DEMA acted as crucial support for the index soon after it made a bottom around 29-30 January. It breached the level on the downside in Friday’s session and now investors are advised to stay cautious and use rallies to create short positions.

Nifty50 opened at 11,023 and rose to an intraday high of 11,041 on February 8, but then bears pushed the index below 11,000 levels to close at 10,943, down 125 points.

India VIX moved up by 0.87 percent at 15.58 levels. VIX needs to hold below 16 zones to extend its positive momentum with the hold above 10,985 zones.

Bank Nifty failed to surpass 27,500 zones and corrected towards 27,220 levels. It has negated formation of higher lows of the last four session and finding multiple hurdles between 27,500 and 27,750 zones from five weeks.

After the recent selling seen on D-Street, experts advise investors to use the rallies to create short positions unless Nifty recovers and sustains above 11,041 levels on the upside.

“The Nifty50 appears to have reversed its trend with a strong bearish candle as a follow through to Thursday’s indecisive formation called Doji,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

The key takeaway from Friday’s behaviour can be the fact that intraday one-hour bounce from the lows of 10950 – 11020, which has given a false hope to bulls, was encountered with a severe attack from bears which resulted in a fall of around 100 points in last one hour of trading suggesting that rallies are meant for selling hereafter.

“Traders are advised to make use of rallies to create short positions with an initial target of 10800 and below that 10530 can’t be ruled out as Nifty may once again be pushed inside the erstwhile trading range of 11000 – 10500 levels,” he said.

Mohammad further added that a stop suggested for the short position will be a close above 11041 levels beyond which bulls will able to get some hope

India VIX moved up by 0.87 percent at 15.58 levels. VIX needs to hold below 16 zones to extend its positive momentum with the hold above 10985 zones.

On the options front, maximum Put OI is placed at 10700 followed by 10400 and 10500 strikes while the maximum Call OI is placed at 11000 followed by 11300 strikes.

Put unwinding seen at all the immediate strikes from 11,100 to 10,700 strikes while Call writing is seen at 11000 to 11200 strikes. Options band signifies a lower shift in the trading range in between 10800 to 11100 zones.

“The Nifty index wiped out most of its gain of the week and formed a High Wave candle with the long upper shadow which indicates that selling pressure is intensifying at higher zones. It has negated its formation of higher lows of last seven trading sessions and witnessed profit booking after the consecutive gains of last six trading sessions,” Chandan Taparia, Associate Vice President, Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.

“It formed a Doji candle followed by a Bearish candle on a daily scale which suggests a short term pause in positive momentum as it failed to hold its gains even after its consolidation breakout above 10985 zones,” he said.

Taparia further added that the index has to again cross and hold above 10985 zones to witness an up move towards 11080 zones while on the downside support exists at 10880 then 10820 levels.

Related Articles