Technical View: Nifty forms a bullish candle; MACD gives a bullish crossover

The Nifty50 which started on a muted note managed to recoup losses and closed just a shade below its crucial psychological resistance level placed around 10,400 on Monday. It made a bullish candle on the daily candlestick charts for the second day in a row.

The index which opened around 5-days exponential moving average (DEMA) placed around 10,360 fell to an intraday low of 10,340. Value buying at low levels pulled the index higher towards 10,400. The index finally closed 9.8 points higher at 10,399.

Bulls clearly took the lead from bears in the second half of the trading session. The Moving Average Convergence and Divergence, popularly known as MACD, which is a trend following momentum indicator also showed bullish crossover which is advantage bulls.

The last time when MACD gave a buy signal on charts or gave a bullish crossover, the Nifty50 rallied from 10,000 levels to a record high of 10,490. The momentum fizzled out and soon after the MACD indicator gave a SELL signal.

“It was heartening to see Nifty50 recovering from the mild dip which it witnessed in large part of the trading session as it went on to sign off the day with a small bull candle. Last few days of sideways move with positive bias has facilitated a buy signal on daily MACD indicator suggesting that market is positioning itself for a next leg of up move,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Besides, other momentum oscillators are shaping up well thereby strengthening the bull case for next couple of trading sessions. Moreover, a much-needed fillip to bulls should come from another major index viz Bank Nifty which appears to be on the verge of a fresh breakout with a minimum target of around 26300 levels,” he said.

Mohammad further added that taking above data into consideration, it looks like new highs look inevitable.  However, as markets are precariously poised at this juncture it looks prudent to maintain a stop of 10300 and ride the rally for initial targets of 10490.

India VIX fell down by 3.55 percent at 13.03. VIX has to cool down below 13-12.50 zones to get the market stability and next round of rally towards new high territory.

On the options front, maximum Put OI was seen at strike prices 10,300 followed by 10,200 strikes while maximum Call OI was seen at strike prices 10,500 followed by 10,400 and 10,600 strikes.

Fresh Put writing was seen at strikes 10400, 10350 and 10300 while Call writing was seen at 10400 to 10600 strikes.

“Significant Put writing at 10400 strikes is shifting its support to 10350 zones while intact Call writing at 10500 strikes could restrict its upside movement to 10500-10550 zones,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“On the technical charts, Nifty formed a Bullish candle on the Daily scale and given a highest daily close in last fifteen trading sessions. It also continued the formation of higher highs for last five consecutive trading sessions,” he said.

Taparia further added that the Nifty has to continue to hold above 10350 to witness an up move towards 10,450 and then towards 10500 zones while on the downside major support exists at 10300 levels.