Technical View: Nifty forms Bearish Engulfing pattern on weekly chart, profit booking advised

January 24
18:29 2020

The Nifty50 after opening lower immediately bounced back and remained in the positive territory for the rest of the session on January 24, led by buying in banks, FMCG and metals stocks. Positive European cues also lifted the sentiment.

The index took support around the 50-DEMA on daily chart and moved higher for second consecutive session after falling in previous four straight days, and formed bullish candle on daily charts as closing was higher than opening price.

For the week, the Nifty lost 0.8 percent and formed Bearish Engulfing pattern on weekly scale, as current week’s candle body completely engulfed the preceding weeks candle body hinting that this market might have posted a near term top around 12,430 levels, experts feel.

The Nifty50 after opening lower at 12,174.55 hit an intraday low of 12,149.65, but immediately recouped those losses and gained momentum as the day progressed. The index hit a day’s high of 12,272.15 in last hour of trade and closed 67.90 points higher at 12,248.30.

“Close observation of line chart (closing price chart) on weekly time frame reveals almost the formation of round top and a close below 12,225 in next week can set the tone for a sharp correction on downside. Hence, the sustainability of last two sessions of upmove remains doubtful though the current pull back swing has a logical target placed in the zone of 12,290–12,360 kinds of levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

“It looks prudent on the part of traders to book profits as Nifty heads closer to 12,300 levels and remain neutral as next week is going to be dominated by events. However, technically speaking weakness in near term shall resume on a close below 12,100 kinds of levels,” he said.

The broader markets continued to outperform benchmarks with the Nifty Midcap index rising 1.6 percent for the week and 0.92 percent today.

On the options front, maximum Put open interest was seen at 12,000 followed by 12,200 strike, while maximum Call open interest was at 12,500 followed by 12,300 strike.

Good amount of writing was seen in 12,200 and 12,250 Put options; while marginal Call writing was seen at 12,450 followed by 12,350 strike.

Abovementioned Option data indicated that the Nifty could remain trading in a range of 12,000-12,500 levels in coming days.

India VIX fell by 1.89 percent to 15.56 levels.

“Volatility is likely to stay higher ahead of the upcoming Union Budget 2020,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Bank Nifty managed to surpass its previous day’s high and extended its gains towards 31,375 levels. The index closed 0.77 percent higher at 31,241.80 and formed a bullish candle on daily scale while Bearish Candle on weekly scale which suggests dips are being bought into; while supply is visible at higher levels.

“Index bounced back sharply from its crucial support of 30,800 and now it needs to hold above 31,000 levels to witness an upmove towards 31,500-31,600 levels while on the downside major support is seen at 30,800,” Chandan Taparia said.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.

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