Technical View: Nifty forms bullish candle, sharp rally seen if index reclaims 11,390
The Nifty50 closed above the crucial 11,300-mark for the first time since March 3 as the bulls returned in full strength on July 28. The rally was backed by banking & financials, auto, IT and metal stocks.
The index remained in the positive terrain throughout the session despite weak global cues and formed a bullish candle on daily charts as the closing was much higher than the opening level.
Experts say the bulls can take the index towards 11,400, with little hope of the bears making a strong comeback.
For the time, odds favour bulls and traders should create fresh longs with initial targets of 11,500 with a stop below 11,150, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.
The volatility also fell considerably, supporting the bullish scenario. India VIX fell by 5.51 percent to 23.64 levels.
The Nifty50 opened higher at 11,154.10 and gradually extended the rally to hit an intraday high of 11,317.75 before signing off the session at 11,300.50, up 168.70 points or 1.52 percent.
“The bulls appear to have made a comeback as the Nifty50 registered a close above the upper boundary of its minor consolidation range present around 11,240 levels. Hence, the trade can remain positively biased as long as the Nifty sustains above 11,151 levels,” Mohammad said
In that scenario, the Nifty can attempt to bridge the bearish gap in the 11,384–11,536 zone registered on February 27, which happens to be the first breakaway gap that unleashed the downward spiral due to the COVID crisis, he said.
The only hope for the bears is that the Nifty is moving inside a well- defined ascending channel for the last 24 sessions. Unless the bulls manage a close above the channel, whose resistance point for next session is placed at 11,390, the bears can remain hopeful but a breakout, can open up bigger targets for the bulls at 11,700 levels, he added.
Option data indicated that the lower as well as upper band of immediate trading range has shifted higher to the 11,150-11,450 zone from 11,000-11,400 level.
On option front, maximum Put open interest was at 11,000 followed by 11,200 strike, while maximum Call open interest was at 11,500 followed by 11,300 strike. Minor Call writing was seen in 11,350 and 11,450 strike, while meaningful Put writing was seen at 11,200 and 11,300 strike.
The Bank Nifty continued its formation of lower highs for the fourth consecutive session but managed to rebound sharply with its support at 50-DEMA.
The index gained 256.45 points or 1.17 percent to close at 22,105.20 and formed a bullish candle, which resembled a Hammer pattern on the daily scale.
“The formation of Hammer kind of candle after the decline of 1,600 points from 23,200 to 21,600 zone gives a sign of support base buying and reversal in recent profit booking decline,” said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
“Now it needs to cross and hold above 22,000 levels to witness an upmove towards 22,500 then 22,750, while on the downside, support is seen at 21,500 levels.”
Taparia said a positive setup was seen in UltraTech Cement, Apollo Hospitals, Kotak Mahindra Bank, Escorts, TCS, Ramco Cement, M&M, Hindalco, Ambuja Cements, Tech Mahindra, Maruti Suzuki, Bajaj Auto, JSW Steel, Marico, HCL Technologies and Wipro. A weak structure was seen in Petronet LNG, UBL and Bata India.