After a volatile morning, the Nifty returned to its strong opening levels in the afternoon and closed near the day's high on April 28, following rally in European markets and backed by banking and financials.
The index failed to hold on to the 9,400 level but closed near strong opening levels and formed a Dragonfly Doji pattern on daily charts.
A Dragonfly Doji pattern signals indecision among traders but also indicates that the bulls managed to bring the index close to the opening level. The index has to clear the immediate hurdle of 9,400 for the bullish sentiment to continue.
Experts expect consolidation to continue. Unless the index closes above 9,400 for a few sessions, the volatility will remain.
Traders with a high-risk appetite who want to go long in anticipation of a breakout can do so with a stop loss below 9,250 and if the index breaches the level, then it will open up shorting opportunity.
The Nifty opened strong at 9,389.80 but gradually wiped out the gains to hit an intraday low of 9,260. The index recouped the losses mid-afternoon to hit the day's high of 9,404.40 in late trade. It climbed 98.60 points, or 1.06 percent, to close at 9,380.90.
"Despite the strong intraday recovery witnessed by the Nifty50, the candle formation is not looking encouraging enough, as it depicted a Dragonfly Doji kind of formation, suggesting equal balance of power between the bulls and the bears for the day," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
In the last three trading sessions, the Nifty registered weak price behaviour with completely indecisive formations.
Hence, to retain bullish bias the Nifty not only needs to sustain above 9,250 but also need a strong close above 9,400 to signal a directional move with a breakout, he said. In such a scenario, the Nifty can ideally head towards 9,970 levels, which is not only the consolidation range target but also 50 percent retracement of the entire fall from the highs of 12,430 to 7,511, he said.
If the Nifty fails to breakout and closes below 9,250, then it will slide towards the lower end of its consolidation zone, whose value is placed at 8,900 levels, Mohammad said.
India VIX fell by 7.07 percent to 35.35 levels. In fact, it has been falling for the last four consecutive weeks, providing comfort to the bulls.
"Volatility and market has negative correlation and falling volatility is suggesting a buy on decline strategy with positive to range bound bias in the market," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.
On monthly options front, maximum Call open interest was seen at 9,500 then 10,000 strike while maximum Put open interest was at 9,000 then 8,500 strike. Call writing was seen at 9,400 then 9,700 strike while meaningful Put writing was seen at 9,300 then 9,400 strike.
"Option data indicates an immediate shift in higher trading range in between 9,200 and 9,600 levels. Rising Put Call ratio with falling volatility suggests a move towards 9,500 levels," Taparia said.
The Bank Nifty opened on a bullish note and remained in positive territory throughout the session. It outperformed the benchmark index for the second consecutive session, rising 589.95 points, or 2.94 percent, to close at 20,671.10 and formed a bullish candle on daily charts.
The index is trading in the 18,700- 21,100 range for last 12 sessions. The range is getting narrower and it is witnessing a symmetrical triangle pattern on the daily chart.
"If it moves above 21,100 levels, then there will be a breakout from the mentioned pattern. Going forward, immediate support is placed at 20,200 then 19,500 levels while resistance is placed at 21,100 and 21,500 levels," Taparia said.
On the stocks front, long build up was seen in IndusInd Bank, Bajaj Finance, HDFC, Manappuram Finance and Axis Bank, whereas shorts were seen in Lupin, Biocon, Marico, IOC and Sun Pharma.