Technical View | Nifty, Bank Nifty form bullish engulfing candle; bulls back in action ahead of Fed meet outcome


The Nifty50 has recouped all its previous day’s losses and formed a bullish engulfing candlestick pattern on the daily charts, indicating that bulls are back in action ahead of the outcome of the two-day Federal Reserve meeting tonight.

The index has got strong support at the bullish gap area of 16,490-16,360 created on July 20. Hence, if the index sustains the same in coming sessions, the 200-day simple moving average (17,033) can be the next possible target, experts said.

A bullish engulfing pattern is also known as a reversal pattern, which is generally formed after the downtrend. In this pattern, the green candle completely covers the previous red candle.

The bounce back was led by most sectors with Nifty Bank, IT, and Pharma indices gaining 1-2 percent. But the trend in broader space was not exactly the same as benchmarks. The Nifty Midcap 100 index gained 1.11 percent and the Nifty Smallcap 100 index closed flat as the market breadth was not very strong. About five shares advanced against four declining shares on the NSE.

The Nifty50 opened flat at 16,475 and after an initial hour of volatility, the index gradually gained strength to hit an intraday high of 16,653. Finally, the index settled at 16,642, up 158 points.

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“The bulls across the globe appear to be putting up a brave face including the Indian market which registered a decent bullish candle. Technically speaking, the index appears to be finding some buying support in the bullish gap area of 16,490 and 16,359 levels,” Mazhar Mohammad, Founder and Chief Market Strategist at Chartviewindia said.

Hence, he feels that post-Fed event, if the index manages to sustain above 16,359 levels on a closing basis then eventually the strength shall expand towards its 200-day SMA whose value is placed around 17,033 levels.

However, if the Nifty registers a close below 16,359 levels, then the weakness shall initially lead it to test its 20-day SMA whose value is placed around 16,197.

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As markets will react to the Federal Reserve outcome, it looks prudent on the part of short-term traders to remain neutral for the day, the market expert said.

The oscillators also showed an uptrend with the RSI (relative strength index) climbing 60 levels and the Stochastic got back above 80 levels, indicating that the sentiments are positive.

The volatility index India VIX fell by 0.22 percent to 18.13 levels, giving a bit of confidence to bulls.

On the Option front, maximum Call open interest was seen at at 17,000 strike followed by 16,900 strike while the maximum Put open interest was seen at 16,000 strike followed by 16,500 strike. Call writing was seen at 16,900 strike and then 17,000 strike while Put writing was seen at at 16,500 strike followed by 16,400 strike.

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With the market recovery, the trading range for the Nifty for coming sessions, as per the Option data, has shifted higher to 16,450-16,850 levels, from 16,200-16,800 levels earlier.

The Bank Nifty opened negative at 36,371 but managed to hold the support of 36,250 and moved higher throughout the day to hit a day’s high of 36,808. The dominance of bulls helped the index settle with 375 points gains at 36,784 and formed a bullish engulfing candle on the daily scale with support-based buying seen at decline.

Now the banking index has to hold above 36,666 to make an upmove towards 37,000 and 37,250 levels, whereas supports are placed at 36,666 and 36,250 levels, Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services said.

On the stocks front, we have seen positive setup in Coromandel International, Exide Industries, PVR, Ramco Cements, Sun Pharma, Hindustan Aeronautics, SBI, Page Industries, Asian Paints, Larsen & Toubro, DLF, Grasim, Bharat Electronics, UltraTech Cement, Bajaj Finance, Trent, Container Corporation and Axis Bank, whereas there was weakness in United Spirits, M&M Financial Services, Tata Power and United Breweries.

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