Technical View: Nifty forms bullish candle again, MACD has a buy signal

Representative image

The Nifty found hit a new peak and closed higher for the third consecutive session on December 19, driven by buying in select majors such as Reliance Industries, TCS, and Bharti Airtel.

The index remained in a intraday range of 77 points before ending at record closing high again. It formed a small bullish candle on daily charts as the closing rate was higher than the opening tick.

One interesting thing was a buy signal triggered by MACD indicator, or Moving Average Convergence/Divergence indicator, on the daily charts.

The MACD indicator is basically a refinement of the two moving averages system and measures the distance between the two moving average lines.

Experts say the technical-chart patterns indicate that there could be a consolidation in the coming sessions.

After opening flat, the Nifty saw some consolidation but gained strength in late morning deals and extended the rally as the day progressed. The index hit an intraday record high of 12,268.35 in the late trade and closed 38 points higher at 12,259.70.

"Today's vertical move facilitated a buy signal on daily MACD chart while pushing the index for a close above upper Bollinger Band. Usually this kind of behaviour on indicators, accompanied with over-bought readings on several other technical parameters on lower time-frame charts, is hinting at the need for some corrective and consolidation phase before taking the index further into uncharted territories," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

He said resistance is visible in the 12,290–12,350 zone, where upsides can be capped.

As risk reward ratios from the current levels may not favour a long-side trade, he advised short-term traders to remain neutral on the buy side and wait for some correction before going long. Shorting can be considered on a close below 12,191 for a target of 12,050.

The options data suggests a shift in higher trading range in between 12,050 and 12,350 in the coming sessions.

On monthly options front, maximum Put open interest was seen at 12,000 followed by 11,500 strike, while maximum Call open interest was seen at 12,300 followed by 12,400 strike. Meaningful Put writing was seen in 12,200 and 12,100 strike, while Call writing was seen at 12,400 followed by 12,500 strike.

India VIX fell by 1.76 percent to 12.12 levels, which could continue to provide support to the index to attract fresh buying interest.

The Bank Nifty continued to make higher highs – higher lows for the sixth consecutive session and formed a Dragonfly Doji candle for the second consecutive session, which indicates that intraday declines are getting bought into. The banking index was sustaining well above its consolidation breakout level and closed at 32,241.50, down 2.80 points.

"Considering the overall chart structure, we reiterate our positive view for an upmove towards 32,500–32,750, whereas major support remains intact in the zone of 32,000–31,750," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.