Technical View: Nifty forms 'Bullish Engulfing' pattern; 10,850 crucial for bulls for next rally

The late rally in banking & financials helped the the 50-share NSE Nifty recoup all its losses seen in the previous session and closed strongly above 10,800 levels on Friday, forming a 'Bullish Engulfing' pattern on the daily chart and a Doji type of candle on the weekly scale.

The index also rebounded sharply from close to its support levels of 10,700 levels.

A bullish engulfing pattern is made up of two candles and is formed when a small black candle is followed by a large bullish candle that completely engulfs the previous day’s candle.

Formation of bullish engulfing pattern signifies that bulls have taken control over D-Street.

The Nifty50, after opening at 10,742.70, traded lower in the morning to hit day's low of 10,710.45, but recouped all those losses in afternoon and then turned strong in the last hour of trade to hit an intraday high of 10,837. It ended at 10,821.90, higher by 80.80 points from the last close.

The Nifty is few points away from 10,850, the crucial level for bulls to gain strength and move towards earlier record high, experts said.

"Albeit Nifty50 strongly rebounded from the right technical support level of 10,700 before signing off the session with a Bullish Engulfing kind of formation," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

He said the index has reached a zone where multiple resistance points in the form of downsloping trendline, bearish gap zone and previous swing high are placed around 10,840 levels. "Hence, a sustainable close above 10,850 shall instill more confidence in bulls which should then ideally result in clearing all the hurdles on its way to new life time highs."

He further said however, today's positive close is inline with its recent behaviour in which both bulls and bears are displaying their strength on alternate days. "Hence, a follow through buying on Monday with a decisive breakout above 10,850 shall catapult the trend in favour of bulls."

As of now it looks prudent on the path of traders either to buy on a breakout above 10,850 or on declines close to 10,740 levels with a stoploss below 10,700, he advised.

India VIX fell down by 3.43 percent at 12.02 levels.

On the option front, maximum Put open interest (OI) was at 10,700 followed by 10,600 strike while maximum Call OI was at 11,000 followed by 10,900 strike.

Significant Put writing was seen at 10,700 and 10,800 strike while Call unwinding was seen at all immediate strike price.

Option data suggests a shift in trading range in between 10,750 to 10,920 zones.

"Nifty index managed to hold its support of 10,700 zones and headed towards its fresh weekly high of 10,837 levels. It formed a Bullish Engulfing pattern on daily scale as covered the entire losses of last session and closed above 10,800 zones," Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities, told Moneycontrol.

The index visited its entire trading range of the week in just one session led by strong momentum in last hour of the session.

"On weekly scale, it formed a Doji candle similar to Bullish Pin Bar as it closed near to its weekly open with long lower shadow. Pattern suggests that decline is again being bought in the market and now it has to continue to hold above 10,770 and 10,835 zones to extend its move towards 10,888 then 10,929 levels while on the downside 10,700 is likely to act as a major support zones," he said.

Bank Nifty witnessed a strong momentum in last hour of the session and made a highest close in last 14 sessions above its multiple hurdle of 26,750 zones.

"It formed a strong Bullish candle and needs to hold above 26,750 zones to extend its move towards 27,000 then 27,150-27,200 zones while supports are seen at 26,250 levels," Taparia added.