As the index seems to be in a no-trade zone, it will be prudent to wait for more signs of strength before initiating long positions, Mazhar Mohammad of Chartviewindia.in has said.
After trading in a narrow range of 90 points, the Nifty50 ended the session flat with a positive bias on August 7 amid weak Asian cues and rising coronavirus infections.
The index managed to hold the crucial 11,200 level and formed a small-bodied bullish candle that resembled a Hanging Man pattern on the daily charts, as the closing was higher than the opening level.
On the weekly charts, too, the index registered a bullish candle as it ended the week 1.3 percent higher.
A Hanging Man is a bearish reversal candlestick, usually formed at the end of an uptrend or at the top.
Given the consolidation in the Nifty in last few sessions, experts say the index needs a strong breakout on the upside for a rally otherwise the bears can take control of Dalal Street.
As the index seems to be in the no-trade zone, it would be prudent to wait for more signs of strength before initiating long positions. Intraday traders can short if the Nifty slips below 11,140 and look for a target of 11,024, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in said.
But the volatility has been falling from its recent bounce of 25.69, suggesting that the bulls are using declines as a buying opportunity. India VIX fell by 2.47 percent to 22.57 levels.
The Nifty hit an intraday high of 11,231.90 and low of 11,142.05. The index closed at 11,214, up 13.80 points.
"…price action of the last three trading sessions is not convincingly in favour of the bulls as it remained narrow and indecisive, which can at times invite counter-attack from the bears," Mohammad said.
It was critical that the index stays above 11,142 in the next session to retain a bullish bias. If it closes below 11,142, then it will confirm short-term weakness, making the index vulnerable to profit-booking that extends to 11,000–10,900 level, Mohammad said.
To regain strength and confidence, the bulls need a strong close with a wide intraday trading range, which can facilitate expansion towards 11,450, he said.
Options data indicated an immediate trading range of 11,000 to 11,500 for the Nifty for the next few days.
Maximum Put open interest was seen at 11,000 followed by 10,000 strike, while maximum Call open interest was at 11,500 followed by 12,000 strike. Minor Call writing was seen at 11,500 and 11,600 strike while Put writing was seen at 11,000 then 11,100 strike.
The Bank Nifty opened flat and remained consolidative in a range of 350 points in between 21,450 to 21,800 levels.
The index closed 111.40 points higher at 21,754 and formed an Inside Bar candle, as it traded inside the range of the previous session.
"Mechanical indicators are on the verge of turning upside and it requires a decisive follow-up to confirm the next momentum. Now if it manages to hold above 21,500 levels, then bounce could be seen towards 22,000 then 22,250, while on the downside, immediate support is seen at 21,250 then 21,000 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.He added that positive setup was seen in SRF, Asian Paints, Bajaj Finance, Apollo Hospitals, Tata Motors, Cummins India, Maruti Suzuki, Britannia Industries and Divis Labs. A weak structure was seen in Biocon, HPCL, Mahanagar Gas and BHEL.