The Nifty50 gained strength in the afternoon and closed higher for the first time after five sessions on March 19, forming a bullish candle that resembled a Piercing Line pattern on the daily charts. FMCG, IT, metals, pharma and select banking and financials lent support to the index.
The piercing pattern is a bullish trend reversal or bottom reversal pattern that appears towards the end of a downtrend. It opened with a gap down and went on to close above the midpoint of the preceding session. It is an early sign that the bulls are in charge and decline is being bought.
The Nifty opened lower at 14,471.15 and hit an intraday low of 14,350.10 amid volatility but the index gained strength in the afternoon trade and extended rally to hit the day’s high of 14,788.25. It closed 186.10 points or 1.28 percent higher at 14,744, after losing 4 percent in the previous five sessions.
The Nifty50 fell 1.9 percent during the week and formed a bearish candle that resembled a hammer formation on the weekly scale.
The hammer is a bullish reversal pattern formed after a decline. A hammer consists of no upper shadow, a small body, and a long lower shadow. The long lower shadow signifies the stock tested its support, where demand was located and then bounced back.
Considering the sell signal on weekly charts, traders should remain neutral on the Nifty by shifting focus to stock-specific opportunities, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia told Moneycontrol.
” …Friday’s recovery seems to be from the confluence of support levels as at an intraday low of 14,350 it almost retraced 62 percent of its last leg of rally from the lows of 13,596–15,431 levels,” Mohammad said.
“Interestingly the said low is also inside the bullish gap zone registered on February 2. Hence, next week if Nifty consistently trades above 14,475 levels then the probability of bottoming out at today’s low of 14,350 shall remain higher. Though a proper confirmation in this regard can be expected only on a close above 15,051 levels,” he said.
Despite this strong recovery, the last six weeks of sideways price action on the weekly charts appears to have paved the way for a sell signal on the weekly MACD chart. Hence, the sustainability of this rally shall remain somewhat uncertain, Mohammad said.
As of now, the tide appears to be favouring bulls. If the upswing continues beyond 14,788 in the next session, then the strength in the index can get extended to 14,875–14,950.
India VIX was marginally down by 0.46 percent from 20.08 to 19.98 levels. “Lower VIX with rising Put Call Ratio indicates that bulls may get some stability after the losing ground of last few sessions,” said Chandan Taparia of Motilal Oswal.
On the options front, maximum Put open interest was at 14,500 followed by 14,000 strike while maximum Call open interest was at 16,000 followed by 15,500 strike. Call writing was seen at 15,500 then 15,600 strike while Put writing was seen at 14,500 then 14,400 strike. Option data indicated that the Nifty50 could see a wider trading range of 14,350 to 15,000 levels in coming sessions.
The Bank Nifty opened gap down at 33,590.40 but the bulls were able to show strength and pulled the index above 34,000 to hit the day’s high of 34,355.40. It concluded the day with gains of 304.80 points at 34,161.60. However, it has been underperforming the Nifty from the last few sessions.
The index formed a bullish candle on the daily scale after a series of weak sessions. “And now the index has to negate the formation of lower highs of the last five trading sessions to attract short-covering move. It needs to hold above 34,250 to witness a bounce towards 35,000 levels, while on the downside support is seen at 33,500 and 33,333 levels,” Chandan Taparia, Vice President | Retail-Research at Motilal Oswal Financial Services said.
The Bank Nifty fell 3.8 percent during the week and formed a bearish candle on the weekly charts.
On the stock front, bullish setup was seen in M&M Financial, Tata Chemicals, Cholamandalam Investment, Cummins India, Power Grid, JSW Steel, HUL, Shriram Transport, UPL, Tata Steel, Reliance Industries, Container Corporation, Torrent Power, Pidilite Industries and UltraTech Cement, while weakness was seen in InterGlobe Aviation, PVR, Motherson Sumi and Petronet LNG, he added.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.
