Technical View: Nifty forms bullish candle, rally seen if index goes past 9,158

May 20
18:28 2020

The Nifty50 gained momentum in the afternoon and decisively surpassed the psychologically important 9,000-mark on May 20, driven by rally across sectors. Bank and auto indices rose 2 percent each while pharma gained 4 percent after quarterly earnings by Dr Reddy’s Labs.

The cabinet approval to some proposals and Finance Minister Nirmala Sitharaman leaving the door open for more economic measures also lifted sentiment.

The index closed above 9,050 and formed a bullish candle on daily charts for the first time in six sessions as closing was higher than opening levels.

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Given the breakout on upside, experts expect the market to consolidate with a positive bias and if the index goes past 9,158, then there could be a sharp rally.

The Nifty50 opened higher at 8,889.15 and extended rally in the afternoon to hit an intraday high of 9,093.80. The index closed at 9,066.55, up 187.45 points or 2.11 percent.

“Strong recovery without a follow through to the breakdown registered on May 18 hinted that market might be in the process of chalking out a new trading range in the 9,158 – 8,806 zone. Hence, after today’s price action with a decent bullish candle market can be expect to consolidate with a positive bias going forward,” Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

In case the index manages to clear the immediate hurdle placed around 9,158 then the rally shall initially get extended into the bearish gap zone of 9,281 – 9,351 levels registered on May 14, he said.

If it slips below 8,800, then once again the index will resume the downswing, he said.

For the time, traders should remain neutral on the index by shifting focus to stock-specific opportunities, Mohammad said.

Sahaj Agrawal, Head of Research – Derivatives at Kotak Securities said options positions witnessed unwinding, which could result in increased volatility in the near term.

“Trend data suggests support at 8,800 and resistance at 9,400-9,500 on the higher side; selling pressure can increase below 8,800,” he added.

Banks were among the day’s leaders. After opening flat at 17,486.50, the Bank Nifty turned volatile with wild swings to hit an intraday low of 17,407.70, but gained momentum in the afternoon to hit the day’s high of 18,002.65.

The index finally settled at 17,840.20, up 353.95 points, or 2.02 percent and formed a bullish candle that resembled a Bullish Harmai pattern on daily charts, as it moved within the trading territory of the previous session.

“This pattern indicates indecisiveness among the market participants and can be a reversal on a move above Tuesday’s high of 18,175 level. In that scenario, we may see a further short-covering bounce towards 18,800 – 19,000 zone. While support is now placed at 17,400 and then 17,200 and 16,500 zones,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

India VIX fell by 9.23 percent to 35.81 levels. The decline in volatility after a consolidation of eight sessions supported some recovery in the market.

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