Technical View: Nifty forms bullish candle for fifth consecutive day; wait for a breakout above 10990

Nifty50, which started off on a muted note on December 20, recouped most of its losses and bounced back from its 5-day exponential moving average placed at 10,899 to form a bullish candle for the fifth consecutive day in a row.

The Nifty also managed to hold on to its crucial support placed at 10,900-10,950, which is a positive sign for the bulls and is on the way to touch 11000 in 2018 itself.

The Nifty formed a bullish candle on an intraday basis as the closing level was higher than the opening level. The index also formed a two-candlestick pattern, similar to 'Piercing Line' on the daily charts.

The Piercing Line pattern is formed when the bullish candle on the day 2 closes above middle points of Day 1 bearish candle.

Even though the momentum remains fairly strong as the market was able to absorb much of the selling pressure after a gap-down start, technical chartists advise investors to remain cautious as we are trading near crucial resistance levels.

"Indian markets appears to have decoupled from the global markets at least for time being as Nifty50 refused to toe its line with negative global cues as the gap down opening was bought into by the market participants which depicted a Piercing line kind of formation (Opens gap down but closes above the midpoint of previous sessions candle body).

"However, as sell signals are emerging on lower time frame charts this kind of outperformance may not last long. Nevertheless, as momentum is strongly favouring the bulls traders are advised to buy a fresh breakout above 10990 kinds of levels rather than buying a dip," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

Mohammad further added that in case Nifty breaches 10800 levels on closing basis then it shall set the tone for a short-term selloff with an initial target placed around 10750 kind of levels.

"On the upsides, if 11000 is conquered then the rally can be eventually expected to head to much higher levels with targets placed around 11400," he said.

On the options front, maximum Put OI is placed at 10000 followed by 10500 strikes while maximum Call OI is at 11000 followed by 11200 strikes.

Put writing is seen at 10900 followed by 10850 strikes while Call writing is seen at 11200 followed by 11100 strikes. The Options band signifies a trading range in between 10800 to 11080 zones.

India VIX fell down by 2.23 percent at 14.33 levels. Overall volatility fell down sharply from higher levels in the last eight trading sessions with a surge in Put Call Ratio which suggests overall bulls grip in the market.

“The Nifty index opened gap down in line with the weak global cues but managed to recover from lower zones and reclaimed its 10950 marks. It formed a Bullish Candle on the daily scale as it managed to hold above 10880 zones,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services, told Moneycontrol.

“Supports are gradually shifting higher and now it has to continue to hold above 10880 zones to extend its move towards 11080 then 11176 zones, while on the downside support exists at 10820-10800 zones,” he said.