Technical View: Nifty forms bullish candle; Bank Nifty holds key for further up move

The Nifty started on a flat note but managed to recoup early morning losses and closed above its crucial resistance level placed around 10,800. It made a bullish candle on the daily candlestick chart which also resembles a ‘Hammer’ kind of a pattern.

In a Hammer pattern, there is no upper shadow. A Hammer is usually considered a bullish reversal pattern and is formed after a decline. A Hammer consists of no upper shadow, a small body, and long lower shadow.

The Nifty opened at 10,786 and rose to an intraday high of 10,818. It slipped to hit an intraday low of 10,733 before reclaiming 10,800 to close at 10,802, up 30 points. The index closed above most of its short and long-term moving averages which is a positive sign.

Banking stocks lend a helping hand to the bulls and if the momentum continues in the banking space, Nifty should hit higher levels, suggest experts. As long as Nifty trades above 10700, investors can stay long on the index, they say.

“Late recovery in post-lunch session appears to have breathed some life into bulls as a result of which Nifty50 closed above its psychologically important 10,800 mark with a bullish candle which has slightly longer lower shadow and can be classified as Hammer as this formation is around lower end of consolidation range,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“However, the larger picture still remains that of a sideways trading zone unless Nifty clears 10,923 that can pave the way for a bigger breakout going forward. Meanwhile, a clean breakout in Bank Nifty with a close above its short-term critical hurdle of 27,430 appears to have cleared the decks even for Nifty50. It shall eventually stabilise and head higher if Bank Nifty were to hit its breakout targets placed close to 28,000 kinds of levels,” he said.

Mohammad further added that on the downside, 10,628 for Nifty is important critical support. Traders are advised to remain positively biased as long as Nifty trades above 10,700 on a closing basis.

India VIX fell by 3.68 percent at 15.70 levels. VIX needs to hold below 16 for Nifty to bounceback in the market, else, roller coaster ride could continue.

For Nifty options, maximum Put OI is placed at 10,500 followed by 10,000 strikes while maximum Call OI is at 11,000 followed by 11,200 strikes.

Put writing is seen at 10,700 followed by 10,400 strikes where marginal Call unwinding is seen at immediate strikes. Option band signifies a broader trading range in between 10,650 and 11,000.

Bank Nifty witnessed buying an interest in morning dips and headed towards 27,550 with a recent highest daily close in last four months. The index formed a bullish candle on the daily scale and has been outperforming the Nifty.

“Nifty Bank has to hold above 27,150 for it can extend its gains towards 27,750, and then 28,000; whereas on the downside, support exists at 27,000,” Chandan Taparia, Associate Vice President, Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.

“For Nifty, the index remained volatile and declines were being bought as it managed to hold above its 50-EMA on the daily scale. It has to hold above 10,750-10,777 zone to witness an up move towards 10,850 and then 10,929. On the downside, support exists at 10,650, then at 10,600,” he said.