Technical View: Nifty forms bearish candle on weekly scale, strength likely if index holds above 5-DEMA
The Nifty overcame early volatility to rally above 8,700, snapping the four-day losing streak to close nearly 6 percent higher on March 20. The hope of a stimulus from government to cushion the economy from the coronavirus fallout and positive global cues lifted sentiment.
Finally, the bulls appear to have found some solace, as the index registered consistent intraday rally and formed a large bullish candle resembling a Long White Day formation on daily charts.
As it is a sell on rally market due to a lot of pessimism created by the coronavirus outbreak, the index has to close above 5-day exponential moving average (which is placed at 8,846) to show technical strength, say experts.
After opening higher at 8,284.45, the Nifty turned volatile but immediately gained strength to extend rally as the day progressed and hit the day’s high of 8,883. The index closed at 8,745.45, up 482 points, or 5.83 percent.
“Despite the strong upward thrust by closing above 5-day exponential moving average, sustainability of this move remains doubtful as it can be on the back of factors like short covering ahead of the expiry week and lower level value-buying, which may not usher in a decent pullback due to the presence of external volatility,” Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
He said technically speaking, further strength towards 9,127 could be expected if the Nifty sustains above 8,891 in the next trading session. “In case if it once again closes below 8,263 levels, then weakness shall resume,” he added.
For the time, Mohammad advised traders to wait for at least one more positive close before considering short- term positions on long side.
Santosh Meena, Senior Analyst at TradingBells, said it was tough to say about the bottom of the market but instead of one-shot buying, investors should go with fractional buying in quality stocks.
“Technically, the Nifty has an important support area of 8,400-7,900 because 8,433 is 100-month simple moving average and in 2008 market made a bottom at 100-month average, whereas 7,900 was the low at the time of demonetisation,” he added.
The Nifty Bank also gained strength after a weak volatile opening and closed 1.17 percent, or 234.10 points, higher at 20,317.60 to form a bullish candle on daily charts. However, for the week, the index lost over 19 percent due to sharp fall in private banks and formed a bearish candle on the weekly scale.
“We believe 19,500 would remain an important support area for the Nifty Bank and the recent pullback may extend towards 22,000,” Amit Gupta of ICICI Direct said.
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