The Nifty snapped its seven-day losing streak on March 3 on hopes of stimulus packages from central banks to fight the economic fallout of the coronavirus that has now spread to 73 countries.
The index rallied over a percent after losing nearly 8 percent in the previous seven sessions and formed a bullish candle that resembled a Harami bullish reversal pattern on daily charts.
A bullish Harami pattern is formed at the bottom of a downtrend or near a significant support zone. This pattern is made up of two candlesticks. On Day One, long bearish candlestick is formed, while on Day Two a small bullish candle is formed. The bigger bearish candle of Day One and a comparably small on Day Two represent a strong trend reversal.
The pattern points to a possible decent pull-back rally in the coming session but the index needs to hold the momentum for some more days, then only there could be confirmation of a reversal, experts say.
Moreover, twin momentum oscillators also generated a buy signal, which usually acts as a leading indicator of an impending upmove.
The Nifty opened sharply higher at 11,217.55 but started wiping out some of the gains to hit the day's low of 11,152.55 at noon amid coronavirus fears.
However, the index gained strength again in the afternoon to hit an intraday high of 11,342.25 after the RBI assured appropriate action to ensure that financial markets ran smoothly if coronavirus impacted the economy.
The index closed 151.50 points or 1.36 percent higher at 11,284.30.
"The litmus test for the bulls lies in absorbing the supply pressure emanating from the bearish gap present in the zone of 11,384 – 11,536 levels registered on February 28. In simple words, if the Nifty manages to sustain above 11,536 levels on closing basis then eventually decks should be cleared for a bigger upmove towards 11,900 kinds of levels," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
On the downside, while strong support exists in the 11,100 – 11,036 zone, a close below 11,130 shall be read as an initial sign of weakness, he said.
For the time, traders with a high-risk appetite should buy into the Nifty on any weakness towards 11,250 and look for an initial target of 11,500, with a stop below 11,130 on the closing basis, he said.
On the options front, maximum Call open interest was at 12,000 then 11,800 strike, while maximum Put open interest was at 11,000 then 11,300 strike.
Call writing was seen at 11,300 then 11,400 strike while Put writing was seen at 11,300 then 11,200 strike. The options data indicates a broader trading range for the Nifty at 10,800-11,600 levels.
India VIX fell by 2.61 percent to 24.54 levels.
The Bank Nifty opened positive and remained volatile throughout the day and ended the session with gains of over a percent. Eventually, the banking index formed a bullish harami pattern on the daily chart.
The index gained 1.07 percent to close at 29,177 and took support around 100 percent extension level of the previous fall and negated its losing streak of last six trading sessions.
"RSI oscillator also turned northward from the oversold territory on the daily chart and thus indicating the possibility of a bounce in the coming days. Till the time, it holds above 28,750 level, we may see a bounce towards 29,600-29,800 zone in coming days while major support is placed at 28,750 and 28,500 levels," Chandan Taparia, Vice President | Analyst-Derivatives, Motilal Oswal Financial Services, said.
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