Technical View: Nifty forms bullish candle; high PCR signals caution
The index is now inching towards key resistance level of 9900 and 10,000 and some bit of profit booking cannot be ruled out.
The bulls maintained their hold on D-Street throughout the trading sessions as the index closed near its record high on Thursday and made a strong bullish candle on the daily candlestick charts.
The Nifty which opened with a gap on the higher side gained momentum and rose to a record high of 9,897.25 before closing the day at 9,891.70, up 75.60 points.
The index is now inching towards key resistance level of 9900 and 10,000 and some bit of profit booking cannot be ruled out. The other factor which raises a red flag is the high Put Call Ratio which is now nearing 1.50.
“We are gradually witnessing a shift in higher option band with rising Put Call Ratio. PCR OI based on the Open interest of Nifty is near to 1.50 which is at 5 years high levels,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“Rising Put Call Ratio suggests that Put writers are more comfortable and confident for the market rally, but much higher Put Call Ratio some time gives a sign of overbought scenario,” he said.
On the technical front, Nifty opened with a gap and made a bullish candle on the daily chart. “Now, it has to continue to hold 9850 zone to witness an up move towards 9950-10000 zones while on the downside supports are seen at 9820 then 9750 mark,” said Taparia.
On the options front, maximum Put OI was seen at strike prices 9,600 followed by 9,700 while maximum Call OI was seen at strike prices 10,000 followed by 9900.
Significant Put writing at 9900, 9800 and 9700 strikes is supporting its up move with higher support zones while fresh Call writing at 9900 to 10200 strike is giving the scope for further upside, suggest experts.
The RSI is trading above 70 levels which indicated overbought zone but MACD and Supertrend indicator are both in favour of bulls. Investors can remain long on the index with a stop below 9,800.
The Nifty now appears to be approaching a risky zone of 9900 – 10,000 levels. It looks like traders are becoming cautious as a result of which a number of scrips declining are outpacing a number of scrips which are closing in positive terrain.
“This is clearly suggesting the weakness building in the broader markets though the index is presenting a different picture as it is closing in the positive zone,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“We advise traders to book profits as we reach the important resistance point of 9935 levels and to lighten up their portfolios rather than creating fresh longs around these levels,” he said.Mohammad further added that if indices decline towards 9800 levels or so then a fresh assessment can be done to create fresh longs but not at these levels.