Technical View: Nifty forms bullish candle, tread with caution as index up 462 pts in 4 days

The Nifty started off the week above 10,700 and remained so throughout the session to close nearly at a four-month high on July 6, backed largely by positive global cues and progress on a vaccine for novel coronavirus, or COVID-19. The first sign of de-escalation in India–China border tensions could also be one reason for the rally in the market.

The Nifty after opening higher at 10,723.85 remained in an uptrend throughout the session and hit an intraday high of 10,811.40. It closed at 10,763.70, the highest level since March 9, up 156.30 points or 1.47 percent.

The index continued its northward journey for the fourth consecutive session and closed above 10,750 levels, forming a bullish candle on the daily charts following a bullish candle formation in the previous week.

The consistent fall in volatility also favoured the bulls as the India VIX declined 2.22 percent to 25.19 levels, the lowest in the last four months.

As the index has added around 450 points in four straight sessions, traders should be cautious, though the momentum seems to remain in favour of bulls, with the next hurdle at its 200 daily moving average (DMA), experts told Moneycontrol.

As of now, considering the narrow intraday trading range, Mazhar Mohammad of Chartviewindia.in advised traders to remain neutral on the index. "One should refrain from creating short positions unless some signs of reversal are visible."

He was quick to add that though there are no apparent sell signals on charts, the current intraday narrow ranges can still be construed as weakening momentum while the Nifty is heading higher.

He sees the immediate hurdle for the Nifty at its 200-day simple moving average, or around 10,887 levels. "Weakness will get confirmed with a close below 10,695 levels. In case it manages a strong close above 10,890 levels, the rally can get extended up to 11,240," he added.

Option data indicated that the Nifty could trade in a wider range of 10,400 to 11,000 levels.

Maximum put open interest was seen at 10,000, followed by 9,000 strikes, while maximum call open interest was at 11,500 followed by 11,000 strikes. Call writing was seen in 11,300, then 10,800 strikes while put writing was seen at 10,700 then 10,600 strikes.

Bank Nifty opened gap up with more than 350 points and extended its move towards 22,400 levels. It closed positive with gains of 1.59 percent, or 346.60 points, at 22,199. It formed a Bearish candle on the daily scale as it consolidated in a 200 points range and closed lower than its opening levels.

"The Bank Nifty has managed to close above the 22,000 zone but multiple hurdles are intact at 22,400-22,500 levels. Now, it has to continue to hold above 21,750 to witness an upmove towards 22,500, then 23,000 levels. On the downside, supports are seen at 21,500 then 21,250 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.