The Nifty bounced back sharply and retained the momentum throughout the session on January 31, as there was short covering and value buying ahead of the Union Budget to be presented on February 1.
The index formed a bullish candle on the daily charts as the closing was higher than the opening level, indicating positive momentum. If the market sustains the trend, a rally towards 17,600 can't be ruled out in the near term, experts said.
The volatility, however, increased and remained above the 20-mark, indicating wild swing on the Budget Day. India VIX, which measures the expected volatility in the market, rose by 6.05 percent to 21.95 levels.
"Technically speaking, today's move should be read as positive for the bulls as it refused to follow the intraday weakness witnessed in the last Friday's session. Hence, ideally, if it sustains above 17,264 levels in the next session, this counter should head towards 17,600 levels," said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisors at Chartviewindia.
If the index slips below 17,264, it should attract intraday selling pressure, which may eventually head towards 17,100, Mohammad said.
The near-term trend would be dictated by the Budget, which may increase volatility, he said. Hence, he advised traders to focus on the larger picture.
After the Budget, the Nifty needs to sustain above 17,100 on a closing basis. "If the index breaches this, then it can resume the downtrend with initial targets of 16,836 levels and below that weakness shall extend towards its 200-day moving average whose value is placed around 16,600 levels."
On the options front, maximum Call open interest was seen at 18000 then 17500 strike while maximum Put open interest was seen at 16500 then 16000 strike.
The data indicates that the Nifty could trade in a wider range of 16,800 to 17,700 due to higher volatility.
The Bank Nifty opened positive at 38,091.80 and rose up to 38,217.25 intraday. The index wiped the gains but recovered from the lows in late morning deals and closed 0.76 percent higher at 37,975.30
The index formed an inside Bar and a small-bodied bearish candle on the daily scale with a longer lower shadow, indicating buying on declines but follow-up missing at higher levels.
"It has been forming higher lows from the last four sessions. Now it has to hold above 37,750 for an up move towards 38,250 and 38,500 whereas support can be seen at 37,500 and 37,250 levels," said Chandan Taparia Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
On the stock front, a bullish setup was seen in Canara Bank, United Breweries, Bank of Baroda, Tata Motors, Indian Hotels, BPCL, DLF, AU Small Finance Bank, SBI, ACC, SBI Life, IRCTC, Power Grid Corporation, Reliance Industries, Aditya Birla Fashion, M&M, Bajaj Auto, Axis Bank and ONGC.
Weakness was seen in IndusInd Bank, Vedanta, Pidilite Industries, Shriram Transport Finance and Indraprastha Gas, he said.
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