Technical View: Nifty forms bullish candle on charts, but don’t get excited

The Nifty which opened with a large gap managed to build on the momentum and closed above its crucial psychological resistance level of 9,850 on Wednesday and made a bullish candle on the daily candlestick charts.

The index formed a bullish candle after registering four successive bearish candles. The index also closed above its crucial 50-days exponential moving average (DEMA) placed at 9,790 levels.

The index is back on a strong footing, but technical experts advise investors not to get excited over the pullback as it was largely on cards. It will be important for Nifty to hold above 9740-9820 levels for the up move to continue towards 9,880 and then 9,928 levels.

The Nifty witnessed a strong up move in last one hour of the session towards 9,857 and finally ended the day with the gains of 87 points.

The Nifty opened at 9,803 and rose to an intraday high of 9,857. It dipped marginally in opening trade to hit intraday low of 9,786, but Bulls managed to pull the index back above 9,850. The index closed 86 points higher at 9,852.50.

“Albeit Wednesday’s move is quite encouraging and appears to have set the stage for a pullback rally traders/investors should not be in a hurry to create aggressive long positions as these pull backs are pretty much part of the corrective or consolidation phase which has a long way to go and yet times end up trapping the bulls,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Hence, as long as Nifty sustains above 9,740 levels one can look for a tradable bounce up to 9,947 levels. In between 9885 can be a tough task for bulls to take off,” he said.

Mohammad is of the view that if that level is conquered then ideally Nifty should manage to clear 9947 levels and then extend its up move towards 10,046 kind of levels based on a corrective pattern which we are presuming it to unfold going forward.

However, if 9740 levels are broken with a lower top below 9947 levels then traders should prepare for more pain going ahead.

On the options front, maximum Put OI remained intact at 9800 followed by 9700 and 9500 strikes while maximum Call OI was placed at 10,000 followed by 10,200 and 10,100 strikes.

On the technical front, Nifty managed to hold above its 50-DEMA and respected its rising support trend line by connecting the lows of 9088, 9448, 9685 and 9720 which is a bullish sign.

“Fresh Put writing was seen at all the strikes from 9900 to 9650 which is supporting the market while Call unwinding in most of the strikes has given the hope for a stable bottom for short term points of view,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“On technical charts, Nifty formed a bullish candle on the daily chart and got a buy signal from mechanical indicators as it turned up from its oversold scenario. Now, it has to continue to hold above 9,820 zones to witness an up move towards 9,880 and then towards 9,928 while on the downside support exists at 9,775,” he said.