The option band signifies a broader trading band between 10,350 and 10,650 for the Nifty, says Chandan Taparia of Motilal Oswal Financial Services
The Nifty managed to reclaim lost ground after a sharp decline on October 11 and closed with gains of over 200 points on Friday. It formed a Morning Star pattern, which indicates that a small follow up buying could confirm a short term reversal from its recent downtrend for a further bounceback.
It formed a Hammer candle on the weekly scale with a positive close on Friday after the correction of the last five weeks. The index has taken support at the lower band of the rising channel on the weekly scale by connecting its major swing lows of 6,825, 7,893 and 10,200.
Now, the index has to continue to hold above the supply cluster of 10,450-10,480 to witness an upmove towards 10,600-10,650. On the downside, support is seen at 10,350 levels.
The 50-share index had a volatile last week with gap up and gap down openings, but bulls finally managed to trump the bears after the weakness of the last five weeks. It has been making lower highs-lower lows from the last six weeks and now a negation of this pattern could attract fresh buying interest.
India VIX fell 5.58 percent last week to 18.63 levels and a topping out formation of VIX suggests that some rescue could be seen in the market. Now, VIX has to cool down below 17 levels for buying interest to emerge in the market.
On the options front, maximum put open interest stands at 10,000, followed by 10,200 strikes. Maximum call OI stands at 11,000 and 10,800 strikes. We have seen put writing at 10,400, followed by 10300 strikes. Call unwinding is seen at all immediate strike prices. The option band signifies a broader trading band between 10,350 and 10,650 zones.
The Bank Nifty formed a bullish candle on the daily chart and a Bullish Engulfing pattern on the weekly scale which indicates that bulls are back on track. It has formed a bottom pattern with a positive divergence on the daily scale.
Now, a decisive hold above 25,250 could take it towards the multiple hurdle of 25,650, then 26,000 zones. Major support for the Bank Nifty now shifts higher to 25,000 levels.
The Indian market will take cues from global markets, developments from the meeting of US and Chinese presidents over trade war concerns, as well as crude and rupee fluctuations.
A bullish set-up in the Nifty and Bank Nifty, with topping out formation in India VIX and USD-INR, suggests that bulls are back on track.
The Nifty 200 daily moving average stands at 10,770. It has a major hurdle at 10,850 zones. These are the next clusters to look at.
A positive price set-up is seen in ICICI Bank, ITC, Bajaj Finance, Maruti, Reliance Industries, among others.Disclaimer: The author is Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services. The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.