Volatility could be seen in the banking index ahead of RBI monetary policy, Chandan Taparia said.
The Nifty gained strength in the last hour of trade and snapped three-day losing streak to close near the day's high on December 4. Renewed hope of a US-China trade deal and buying in banks ahead of the RBI policy lifted the sentiment.
The index closed above 12,000 and formed a bullish reversal Piercing Line pattern, as it opened below the previous session's close and ended the day above the mid-point of the preceding session's candle body.
The piercing pattern is a bullish trend reversal or bottom reversal pattern that appears towards the end of a downtrend. It is an early sign that the bulls are in charge and decline is being bought.
If the index manages to hold 11,935, then there could be further upside in coming days, experts say.
The index took support around the lower end of the channel and the 20-day EMA on the daily chart for the second consecutive session. Market breadth also remained in favour of advancing counters, a positive sign for the market to retest the recent swing highs.
The Nifty opened lower at 11,969.95 but gathered momentum and got back in the positive terrain in the initial hour followed by selling pressure.
It hit an intraday low of 11,935.30 in the afternoon followed by recovery. It gained strength in the last hour of the trade and hit the day's high of 12,054.70 before closing 49 higher at 12,043.20.
"Besides the price action, the index appears to have carved out an ascending channel in the last 17 trading sessions and interestingly, the index smartly recoiled after testing the lower boundary of the said ascending channel with a low of 11,935 in today’s session. Hence on the back of these positive technical developments, the Nifty shall ideally trade in a positive terrain for the next couple of trading sessions, provided it sustains above 11,935 levels," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
In that scenario, initial target can be around 12,113, he said.
India VIX fell sharply by 8.50 percent to 13.32.
A sharp cut in volatility index suggests the bullish bias could continue with buying on decline strategy in the market, said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
A breach of 11,935, whoever, will resume weakness in the index, with initial target of 11,800, he said.
He advised traders to remain neutral on the short side and look to buy dip between 12,000–11,970, with a stop below 11,935 and look for a target of 12,100 levels.
The options data suggests that the Nifty could trade in a range of 11,900 to 12,300.
Maximum Put open interest was seen at 12,000 followed by 11,500 strike, while maximum Call open interest was seen at 12,500 followed by 12,000 strike. Call writing was seen at 12,400 strike, while marginal Put writing was seen at 11,800 followed by 11,900 strike.
The Bank Nifty managed key support of 31,400-31,500 and witnessed a decent recovery towards 32,000. The index closed 1.16 percent higher at 31,979.30.
It has negated the formation of lower highs–lower lows of the last three sessions and formed a bullish engulfing pattern on daily charts.
"The momentum oscillator RSI took support at 60-62 levels and started moving northward, which certainly bodes well for the bulls. Now till it holds above 31,500 levels, the rate- sensitive index could lead the broader market by heading towards its life-time high of 32,157 then a fresh rally towards 32,500, while strong support is placed near 31,400," Taparia said.Volatility could be seen in the banking index ahead of the RBI monetary policy, he said.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.