The Nifty50 on September 30 gained strength after an initial hour of volatility and as the day progressed, it comfortably extended its northward journey to give a decisive close. The index not only settled above the crucial psychological level of 17,000 but also topped the 200-day moving average (DMA) of 16,982. It gained 1.6 percent and hence snapped a seven-day losing streak.
It was a good start to the October series. The market rallied after the Monetary Policy Committee’s decision came in on expected lines with the announcement of a 50 bps hike in the repo rate.
The 50-share benchmark index witnessed a strong bullish candlestick pattern on the daily charts which engulfed the previous two red candles. There was a Hammer kind of pattern on the weekly charts, the bullish reversal pattern formed at the downtrend, especially after Friday’s sharp recovery. The index has fallen for the third consecutive week now, down 1.3 percent.
The Hammer is a bullish reversal pattern formed after a decline. It consists of no upper shadow, a small body, and a long lower shadow. The long lower shadow signifies the stock bounced back after testing its support, where demand is located.
The rally was driven by banking & financial services, auto, and metal stocks. The broader markets also equally participated in the upward journey as the Nifty Midcap 100 and Smallcap 100 indices gained 1.6 percent each. About three shares advanced for every share declining on the NSE.
The Nifty50 opened moderately lower at 16,798 and fell to a crucial support level around 16,750 amid volatility but after the policy announcement, the index gained strength to hit an intraday high of 17,187 in the afternoon. It closed with 276 points or a 1.6 percent gain at 17,094 after defending 16,750-16,800, the crucial support area.
“After a sharp selloff, the Nifty took support near 16,800 and bounced back sharply. On daily charts, the index has formed a long bullish candle, and also formed a promising Hammer candlestick formation on weekly charts which is broadly positive,” Amol Athawale, Deputy Vice President – Technical Research at Kotak Securities said.
For the trend following traders, the 200-day SMA (simple moving average) and 16,900 would act as a sacrosanct support zone. Above the same, the reversal wave is likely to continue till 17,250.
Further upside may also continue which could lift the index to 17,400. On the flip side, below 16,900, an uptrend would be vulnerable and on the further decline, the index could slip to 16,800-16,700, the market expert said.
The further decline in volatility also brought the bulls into their comfort zone. India VIX, the fear index dropped by 6.26 percent to 19.97 levels.
Since it’s the beginning of the new series, Option data is scattered at various far strikes. We have seen maximum Call open interest at 17,000 strike followed by 17,500 strike while the maximum Put open interest was seen at 16,000 strike then 17,600 strike.
Marginal Call writing was seen at 17,200 strike then 17,500 strike while marginal Put writing was seen at 17,100 strike then 16,800 strike.
The above Option data indicated that the Nifty may trade in a range of 16,800-17,400 levels in the immediate term.
Bank Nifty opened flattish at 37,660 and fell below the 37,400 level in the initial tick but recovered massively thereafter with bulls in complete charge. It touched an intraday high of 38,811 and closed with handsome gains of 984 points at 38,632.
The banking index has formed a bullish engulfing candle on a daily scale and negated its lower highs of the last seven sessions. It formed a Hammer candle on the weekly frame with a long lower shadow indicating buying interest from the lower zone. Now, it has to hold above 38,500 area to make a march towards 39,000 and 39,250 levels, whereas supports are placed at 38,250 and 38,000, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.
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