Technical View: Nifty forms bullish candle, but experts say avoid going long

February 12
18:28 2020

The Nifty50 opened sharply higher and remained strong throughout the session on February 12, following a rally in Asian peers as investors ignored concerns over the fast-spreading Coronavirus.

The index closed tad above 12,200 levels and formed a small bullish candle on the daily charts.

India VIX fell further by 1.86 percent to 13.62 levels, which also supported the bulls.

But the weak breadth of the market is a cause of worry, suggest experts, advising traders to avoid going long on the index.

Three shares declined for every two shares rising on the NSE.

The Nifty50 after opening sharply higher at 12,151 hit an intraday high of 12,231.75 and a low of 12,144.30. The index closed 93.30 points higher at 12,201.20, supported by FMCG, select banks, auto and IT stocks.

“Bulls appear to be defying bearish technical parameters for the time being as Nifty managed to get past its initial hurdle placed around 12,160 with a small bullish candle. However, in today’s session, the advance-decline ratio completely skewed in favour of bears as approximately 7 stocks rallied for every 10 stocks declining. Therefore the index continues to remain vulnerable to a sell-off despite bulls succeeding in putting up a brave posture,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said as long as this index sustains above 12,144 levels, an initial target of 12,266 can be expected and beyond that, 12,350–12,400 can’t be ruled out in this upward swing which still looks like an upward corrective reaction to the entire fall from the highs of 12,430–11,614.

In case the index closes below 12,144, a fresh leg of downswing shall unfold with initial targets of 11,990, he added.

He feels for the time being even though the market is moving higher, it looks prudent on the part of short term traders to avoid long-side bets on the index by shifting their focus on stock-specific opportunities whereas shorting should be considered on a close below 12,144 for an initial target of 11,990.

Option data indicated a shift in trading range for Nifty to 12,000-12,400 levels.

Maximum Put open interest was seen at 12,000 followed by 11,800 strike while maximum Call open interest was at 12,500 followed by 12,400 strike. Put writing was mainly seen at 12,000 and 12,200 strike while Call unwinding was seen at all the immediate strikes.

Bank Nifty managed to close near its immediate hurdle of 31,500 levels and held above its 50 DEMA from last two trading sessions. The index closed at 31,492.90, up 0.61 percent.

It has given a highest daily close in last 19 trading sessions and formed a small bodied bullish candle on daily scale.

“Bank Nifty has given a consolidation breakout from its trading band of 30,900 to 31,500 zone and now requires a follow up buying interest to drive the next leg of the rally. It has to hold above 31,200 to extend its move towards 31,750 then 32,000 levels while major support exists at 31,000-30,900 levels,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

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