The Nifty50 rebounded sharply after the previous day's selloff and closed nearly 4 percent higher on the last day of the 2019-20 financial year, mirroring positive global cues.
The index formed a small bullish candle on daily charts, as the closing was higher than the opening point.
Experts say consolidation will continue and if the index surpasses 8,660 on closing, then there could be a sharp upside in the coming days.
Positional traders are advised to retain optimistic outlook and should consider fresh long positions on a close above 8,660 for bigger targets.
The Nifty50 opened sharply higher at 8,529.35 and extended gains to hit the day's high of 8,678.30. The index ended the day at 8,597.75, up 316.65 points, or 3.82 percent, while for the month and financial year, it lost 23.4 percent and 26.2 percent, respectively.
"Despite almost recording a 4 percent upmove, what the candle depicted is somewhat disappointing as it took the shape of a Hanging Man formation," said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.
However, the current leg of fall from the highs of 9,038–8,244 is looking like a right shoulder of an Inverted Head & Shoulders formation on the Line Chart (closing price chart), which is a bullish reversal pattern, he said.
A breakout will be confirmed on a close above 8,660, signalling the beginning of a fresh leg of an upswing, with bigger targets placed around 9,500, he said.
It is critical for the Nifty to stay above 8,244 as a breach of this level can resume the downswing with targets placed in the 8,100–7,900 zone, Mohammad said.
The volatility seems to be cooling off from higher levels. India VIX fell by 10.41 percent to 64.40 levels.
The falling VIX may provide some stability and indicates some short- term relief to the bulls for a bounce-back move, said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
On the monthly options front, maximum Call open interest was at 9,000 and then 10,000 strike while maximum Put open interest was at 8,000 then 7,500 strike. Some Call writing was seen at 9,000 and 10,000 strikes, while open interest build-up was seen at 8,000 and 7,500 put options.
The options data indicates that the immediate trading range for the Nifty could be between 8,000 and 9,000.
The Bank Nifty underperformed the benchmark index for the second consecutive session and moved up by 1.93 percent only to 19,144. It moved within the trading territory of the previous day’s session and formed an Inside Bar pattern on the daily chart.
"The RSI oscillator is currently showing a negative hidden divergence on the daily scale. Going forward, resistance for the Bank Nifty is placed at 19,700 and then 20,500 levels; while support can be seen around 18,600 and then 18,000 zone," Chandan Taparia said.
"Till the time, Bank Nifty doesn't sustain above 19,700 levels, the bears will have an upper hand and we may see selling pressure on bounce- back move."