Technical View: Nifty forms bullish candle; go long with a stop loss at 9,440

The Nifty which started off on a weak note managed to recoup losses and closed above its crucial support level of 9,500 and 50-days exponential moving average (DMA) placed at 9480. The index made a small bullish candle on the daily candlestick charts on Friday.

The index slipped below its 50-DMA in intraday trade but bulls managed to push the index above 9,500 which is a bullish sign. The more time it (Nifty) spends around 9,500 would strengthen the argument that a bottom is in place.

The Nifty opened at 9,478.50 and slipped to an intraday low of 9,448.75 which is shown by the long lower shadow. The bulls managed to push the index towards 9,535 before closing the day at 9,520, up 16.80 points.

The Nifty50 started the week on a negative note tracking weak global cues and later fears related to goods & services (GST) implementation led to some bit of volatility in the market.

“It was heartening to see a Hammer kind of formation on weekly charts and a bullish candle on the daily chart as Nifty50 recoiled after testing its 50-Day EMA before signing off the last trading session of the week,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Any follow through buying in the next trading session with a close above 9,576 levels shall not only confirm bottom at today’s low of 9,448 but also strengthen the short term momentum which can take indices initially towards 9,700 levels,” he said.

This rally after intraday breakdown augurs well for market participants and has tilted the sentiment in favour of bulls. Traders can go long on the index with a stop below today’s low at 9,440.

The Nifty has given a monthly negative close after five successive positive months started from January to May 2017, but the outlook is still on the upside as long as Nifty holds Friday’s low of 9,448.75.

Hence, Mohammad advises traders to go for fresh longs with a stop below 9,440 levels and based on wave structure we should see Nifty50 heading beyond 9,700 levels once this corrective structure gets culminated.

On the options front, maximum Put OI was seen at strike price 9,400 followed by 9,500 while maximum Call OI was seen at strike prices 9,700 followed by 9,500.

“We have seen Call and Put writing in most of the strike as OI concentration scattered at different strikes at the beginning of new series. As of now, options data signifies the band of 9400-9700 on weekly basis,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The Nifty index opened negative but managed to hold 9450. On the downside, if the index holds below 9,480 may again attract selling pressure towards 9450 and 9420 marks while a hold above 9560-9580 could attract fresh spike towards 9650 zone,” he said.

Taparia further added that on weekly basis, the index continued its decline for a third consecutive week and formed a small Bearish candle on the monthly chart similar to a Spinning Top candle.