Technical View: Nifty forms bearish candle, traders advised to stay on sidelines

May 09
18:29 2019

Nifty50 ended lower for a seventh consecutive session on May 9 amid mixed quarterly earnings and muted global cues, though it managed to hold on to the 11,300 level.

The index formed a bearish candle with long lower shadow which indicates overall weakness but now supports are visible at lower zones, experts said, adding the consolidation may continue in coming days.

India VIX fell by 3.67 percent to 25.39 levels.

The Nifty50 after opening lower at 11,322.40 attempted recovery in morning itself but drifted lower again and hit an intraday low of 11,255.05. In last hour, it witnessed strong recovery from lower levels and finally closed with a loss of 58 points at 11,301.80.

“Nifty50 smartly recoiled after retracing around 50 percent of its last leg of rally from the lows of 10,585–11,856 levels which resulted in the bearish candle which resembles a Hammer kind of formation with slightly longer lower shadow,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

“Interestingly, these levels are also coinciding with pattern targets of 11,250 and in fact, there seems to be a confluence of support points placed in the zone of 11,250–11,200 levels including 100-day exponential moving average (11,228). Hence it appears that downsides from current levels can be limited towards the zone of 11250-11,200.”

He said key takeaway from today’s intraday price action can be the fact that Nifty is facing selling pressure around 11,350 levels as it made two intraday attempts in vain to conquer the said level but selling got intensified the moment bulls neared the 11,350-mark.

Hence, going forward, upside may remain capped around 11,357 and a close above this level can be considered as an initial sign of strength for bulls, he added.

Mazhar Mohammad said nevertheless for time being it looks prudent on the part of traders to remain on sidelines and wait for some sort of consolidation for a couple of days around 11,250 levels before initiating fresh longs.

Bank Nifty continued its weakness for a fourth consecutive session but the pace of selling is now getting lesser as it formed a Doji candle on the daily scale. The index closed at 28,884.60, down 109.80 points.

“It continues to remain below 50 Dema and now till it remains below 29,250 zones weakness could extend towards 28,500 zones while on the upside hurdle is seen at 29,500 zones,” Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

On the options front, maximum Put open interest (OI) is at 11,000 followed by 11,500 strike while maximum Call OI is at 12,000 followed by 12,500 strike.

Minor Call writing is at 11,400 followed by 11,900 strike while Put unwinding is at immediate strike price.

Option band signifies a shift in lower trading range in between 11,200 to 11,700 zones, experts said.

“Nifty index has been making lower lows from last five trading sessions and resistances are gradually shifting lower,” Chandan Taparia said.

Now till it remains below 11,350 zones, weakness could continue towards 11,250 then 11,188 zones while resistance is also shifting lower to 11,420–11,440 zones, he added.

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