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Technical View | Nifty forms Inside Bar kind of pattern; 16,500 crucial for further trend

Volatility was slightly up on May 31 but has been making lower highs over the last five days, which is giving respite to the bulls. Now it needs to come down to 18 zones for market stability, says Chandan Taparia of Motilal Oswal Financial Services.

May 31, 2022 / 06:17 PM IST
Representative image.

Representative image.

The Nifty50 snapped three-day gains and closed around half a percent lower on May 31, after a mixed trend in global counterparts. Banking and financial services, and select pharma and IT stocks pulled the market down, whereas buying in auto, metal and select FMCG stocks capped losses.

The index has formed an Inside Bar kind of pattern on the daily charts as the trading range was within the bullish candle of the previous session, indicating indecisiveness among market participants. Experts said 16,500 is expected to be crucial for further market trend, as its breaking can drag down the index below the 16,400 mark.

India VIX, which measures the expected volatility in the market, was up by 2.48 percent to 20.48 levels. "Volatility was slightly up on Tuesday but has been making lower highs over the last five days which is giving respite to the bulls. Now it needs to come down to 18 zones for market stability," Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services said.

The Nifty50 opened lower at 16,578 and hit an intraday low of 16,523. During the day it showed recovery to hit a day's high of 16,691 but failed to hold on to the same due to selling pressure in the last hour of trade. The index fell 77 points to 16,584.5 after more than 600 points gains in the previous three straight sessions.

"Nifty50 seems to have registered an Inside Bar kind of formation as its trading range for the day is confined to that of the last Monday's session between 16,695 and 16,506. However, a late sell-off in the last 30 minutes of the session can be a cause for concern," Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia said.

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He further said that if the Nifty slips below 16,500 levels in the next session, it can extend the weakness towards 16,370 levels to bridge the bearish gap present between 16,506 and 16,370 levels.

However, strength can be expected to resume if bulls manage to push the index above 16,690 levels but in that scenario, upsides shall be limited towards 16,750 where 200 days EMA (exponential moving average) is present, and for a sustainable up move, further confirmation in the form of a close above 200 days EMA is required, he added.

For the time being, traders are advised to remain neutral on index trades, the market expert said.

Option data continues to indicate that the Nifty50 could see a trading range of 16,200 to 17,000 levels for coming sessions. Maximum Call open interest was seen at 17,000 strike followed by 17,500 strike while maximum Put open interest was seen at 16,000 strike. Call writing was witnessed at 17,000 strike followed by 16,700 strike while Put writing was seen at 16,500 strike.

Also readGainers & Losers: 10 stocks that moved the most on May 31

Bank Nifty also opened negative at 35,615 and took a breather after the run-up of the last few days. It closed near its 50 EMA with losses of 340 points at 35,487.

"It made a bearish candle on the daily scale and negated its higher highs of the last four sessions. Now it has to hold above 35,500 levels to make an up move towards 35,800 and 36,100 levels while on the downside support is seen at 35,250 and 35,000 levels," said Taparia.

On the stocks front, a positive setup was seen in MCX, ONGC, NTPC, Balkrishna Industries, M&M, Coal India, Zee Entertainment Enterprises, Tata Consumer Products, Max Financial Services, Britannia Industries, SBI Life, Sun TV Network, Dixon Technologies, Power Grid Corporation, Trent, Colgate Palmolive, Bharat Electronics and Cipla, the market expert said, adding weakness was seen in Metropolis Healthcare, Kotak Mahindra Bank, Sun Pharma, AU Small Finance Bank, SBI and Jindal Steel & Power.

The broader markets closed mixed with the Nifty Midcap 100 index falling 0.13 percent and Smallcap 100 index gaining 1.24 percent.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: May 31, 2022 05:35 pm
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