Technical View: Nifty forms a strong bullish candle; here’s how to trade next week

The Nifty50 which started the day on a muted note rose to fresh record highs towards the end of the trading session on Friday and made a strong bull candle on the daily candlestick charts. The candle engulfed the profit booking seen in the previous session.

The index rose as much as 213 points or nearly 2 percent for the week ended January 19. The index which looked as if was losing steam bounced back sharply negating the effects of a bearish candle formed in the previous trading session.

The index broke out above 10,900 to hit a fresh record high of 10,906.85 but failed to close above the same. For the coming week, analysts advise investors to remain long with a strict trailing stop loss below 10,790.

The liquidity rally pushed the index above crucial resistance levels so far in the month of January and the next target for the index stands at 11,000 which is also its crucial resistance level.

The Nifty50 which opened at 10,829.20 slipped below 10,800 to hit an intraday low of 10,793. It bounced back from its 5-day exponential moving average (DEMA) placed at 10,793 to close 77 points higher from its previous close at 10,894.70.

“It was yet another action-packed a day on the bourses as Nifty50 recovered from a mild dip before signing off the week with a strong bullish candle on both days as well weekly time frame. However, it needs a breakout above 4-month-old ascending channel which should throw up bigger targets for the indices going forward,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“On such a breakout, a modest target of 11,100 looks certain. However, as we are entering into a truncated week with technical oscillators in steeply overbought zone, profit booking in next trading session can’t be ruled out,” he said.

Mohammad further added that traders are advised to book profits by taking advantage of initial euphoria, if any, on Monday and maintain a tight stop below 10,790 levels on a closing basis and look for higher targets ushered in by the breakouts.

On the options front, maximum Put open interest was seen at 10500 followed by 10700 strikes while maximum Call OI was at 11000 followed by 10800 strikes.

Significant Put writing was seen at 10800 and 10700 strikes which are shifting its support to higher levels whereas Call Unwinding was seen in all the immediate strike price.

“Option band signifies a trading band between 10,800 to 11,000 zones. The Nifty index managed to hold above 10,780-10,800 zones and made a new record lifetime high of 10,906 levels. It engulfed the profit booking of the last session and given a strong daily and weekly closing,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“It surpassed its supply trend line and now the same is acting as a support zone to push the market to higher levels. Now it has to continue to hold above 10,780-10,800 zones to extend the rally towards psychological 11,000-11,050 zones while on the downside supports are seen at 10,700 and 10,666 levels,” he said.