Technical View: Nifty forms ‘bearish candle’; remain long with a stop below 9,540

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The Nifty snapped its three-day winning streak on Tuesday, as the market breadth turned in favour on bears towards the closing trade. The index closed well below its opening level and made a bearish candle on the daily candlestick charts.

A bearish candle is formed when the close value is below the open value, how much the gap between the close and open doesn't matter. A formation of a bearish candle after a small bullish candle hints at a pause but investors can stay long with a stop below 9,540.

The Nifty which opened at 9,645.90 slipped to an intraday low of 9595.50 but bulls managed to pull the index back above its crucial level of 9,600. However, it lost some ground from its highest point of the day and closed at 9,613.30 down 1.7 points.

The index came under selling pressure as soon as it attempted to cross its psychological resistance level of 9,650.

“The Nifty index opened positive but failed to surpass 9650 marks and witnessed a decline of 50 points from opening levels. It formed a Bearish candle as it closed on a flat to negative note but still making higher highs – higher lows from last two sessions,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The index has recently recovered from 9,450 mark but again got stuck in the trading range with the hurdle of 9650 and 9700 mark. It has to continue to hold above 9560-9580 zone to witness an up move towards 9650 then 9700 zone while on the downside support exists at 9520 then 9480 mark,” he said.

On the options front, maximum Put OI was seen at strike prices 9,400 followed by 9,500 while maximum Call OI was seen at strike prices 9,700 followed by 9,800. Fresh Put writing was seen at 9300 to 9600 strike while major Call writing was only seen at 9700 strike.

Investors should not get overly worried about the intermittent corrections. The bulls will be able to pick up momentum once the index manages to close convincingly above 9,650 on a closing basis. Long positions can be maintained with a stop loss below 9,540.

“Bulls paused after two days of up move as Nifty50 consolidated in a narrow range of 56 points before signing off the session with a bear candle,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Just by looking at this price action traders need not unduly perturbed as momentum oscillators on lower time frame charts are still in buy mode. Any dips towards 9,550 levels can be considered as an opportunity to go long with a stop below 9540 levels,” he said.

Mohammad further added that bulls will regain their strength and resume the upward journey once Nifty manage to cross 9,650 levels.