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Jan 11, 2018 05:10 PM IST | Source: Moneycontrol.com

Technical View: Nifty forms small bullish candle; avoid creating long positions

Investors are advised to stay light and don’t be in a hurry to create fresh long positions on the index and wait for a breakout. However, chances of a breakdown look more likely considering the fact Nifty is showing signs of overbought levels.

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The bulls managed to push the index higher after slipping towards its 5-days exponential moving averages (DEMA) to a fresh record high of 10,664.60 on Thursday making a small bullish candle which also resembles a 'Hanging Man' kind of pattern on daily candlestick charts.

The index which started the day on a muted note slipped to its 5-DEMA placed at 10,612 but then bulls took control and pushed the index to a fresh record high. Last 30 minutes buying took the index above 10,650 levels towards closing.

The Nifty50 index which opened at 10,637 slipped to an intraday low of 10,612.35. It rose to a record high of 10,664.60 before closing the day 19 points higher at 10,651.

Trading continued to remain lackadaisical even in Thursday’s trading session ahead of crucial results from two IT bellwether names – Infosys and TCS.

Investors are advised to stay light and don’t be in a hurry to create fresh long positions on the index and wait for a breakout. However, chances of a breakdown look more likely considering the fact Nifty is showing signs of overbought levels.

The Nifty50 moved in a narrow range of around 50 points before signing off the day with a small bullish candle. “These kind of a range bound moves for last 3 sessions are clearly suggesting that market is in need of a trigger for further upsides and unless it sees a strong intraday up move beyond 10660 levels it is bound to remain sideways,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Monneycontrol.

“Slowly momentum oscillators on lower time frame charts are facilitating sell signals whereas some oscillators on a medium term time frame are in an extremely overbought zone thereby capping the upsides,” he said.

Mohammad further added that a close below 10592 shall confirm the weakness and may trigger a fresh bout of selling. “In the light of these facts traders should give priority to preserve their profits and shall not be in a hurry to create fresh long positions without signs of an upside breakout,” he said.

India VIX moved down by 0.20 percent at 14. VIX has to hold below 13-12.50 zones to support the fresh leg of the rally with a smooth ride in the market.

On the options front, maximum Put open interest was seen at 10500 followed by 10400 strikes while maximum Call OI was seen at 11000 followed by 10700 strikes.

“Fresh and significant Put writing at 10600 and 10500 strikes which is shifting its support while Call unwinding is seen at all the immediate strike prices. Option band signifies a trading band between 10600-10750,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“On the technical charts, Nifty formed a hanging man candle for the third consecutive day, however, some follow up buying is required to take the index to higher levels. It has to continue to hold above 10600 zones to extend its up move towards 10700 while on the downside supports are seen at 10550 and 10500 levels,” he said.
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