Technical View: Nifty forms piercing pattern on charts; trade long with stop at 9,980

The Nifty50 rebounded from its 13-days exponential moving average (DEMA) placed at 9,998 to close well above its crucial level of 10,050. The index formed a bullish candle but it also registered a piercing pattern on the candlestick charts.

A piercing pattern is formed at the end of a downtrend or signals a trend reversal. It is a two-candlestick pattern in which the first candle is usually a bearish candle and the second is a green or a bullish candle which closed above the midpoint of the previous trading sessions.

The Nifty50 index opened at 10,008.60 and then slipped to an intraday low of 9988.35. It managed to bounce back from its 13-DEMA placed at 9997. It finally closed near its intraday high of 10,075.25 at 10,066.40, up 52 points.

The Bulls finally took charge of D-Street as the Nifty50 index closed near the high point of the day. The Nifty50 saw some correction post after Reserve Bank of India announced the rate cut.

The index fell from 10,137 mark to 4 digits below 10,000 though buying later this week due to positive global cues helped it recovered from 9,988 to close above 10K at 10,068.

The momentum is strong and traders who are holding long positions should continue holding them with a target of 10,350 and keep a strict stop loss placed at 9980, suggest experts.

“The Nifty50 registered almost a piercing pattern on candlestick charts as it opened lower and went on to close the day above the midpoint of the previous trading sessions candle body there by negating the bearish formations of last two trading sessions,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“More over Friday’s price behaviour is almost in line with recent behavioural patterns as corrections since June lows of 9448 have not lasted beyond two days,” he said.

Mohammad further added that as momentum is strong and critical averages are not violated on short term charts one can maintain a bullish bias for a target of 10,350 with a stop below 9,980 levels on closing basis.

Options data also suggest the range to be narrower in the short term and Nifty must close above 10,100 to continue the uptrend, suggest experts. Profit booking in BankNifty was seen as a major factor that draws market down from all-time highs.

The Nifty ended up for fifth straight week gaining marginally as it saw some profit booking post RBI announcement.

“On the technical front, Nifty made a Piercing pattern on daily while a small candlestick pattern on the weekly chart indicates a small trading range,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“In the near term, it will be crucial for the market to close above 10,100 as to sustain the momentum and continue its bull run towards higher levels. A resistance comes at 10150 while beyond that we expect next resistance at 10400,” he said.

Nadeem is of the view that support in Nifty is seen at 9,900 which may act as a fresh base while any close below it will trigger a deeper correction in prices towards 9,650 – 9,700.