Traders should remain neutral on the index while shifting their focus to stock-specific opportunities, says Mazhar Mohammad of Chartviewindia.in.
The Nifty50 rallied for the third consecutive session and closed above the crucial 10,600-mark on July 3, backed by strong Asian cues and optimism of recovery in economy even though coronavirus infections continued to rise.
The index closed near its opening levels and formed a Doji pattern on daily charts, suggesting indecisiveness among the bulls and the bears. It continued the uptrend for the third week in a row and closed 2.2 percent higher to form a strong bullish candle on the weekly scale.
A rally is likely only if the index decisively crosses and closes above 10,630 level in the coming session, otherwise there could be sideways trade, as the index is moving closer to overbought position, experts say.
For the time, traders should remain neutral on the index while shifting focus to stock-specific opportunities, said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in.
After opening higher at 10,614.95, the Nifty50 remained in positive terrain throughout the session, touching an intraday high of 10,631.30 and low of 10,562.65. The index closed with 55.70 points gains at 10,607.40.
"Albeit Nifty50 registered a strong bullish candle on the weekly charts, an indecisive Doji is visible on daily charts on the back of extremely narrow trading range within 69 points can be a cause for concern going forward," Mohammad said.
"Some technical indicators are reaching overbought zones on lower time-frame charts. Hence, unless the Nifty registers a strong close in the next trading session, the said index shall slip into sideways zone with negative bias for rest of the week," he said.
According to him, if the Nifty manages a strong close above 10,630 levels, then it can initially extend its upswing towards 200-day simple moving average whose value is placed around 10,889 levels.However, if it sees a negative close below 10,562 levels, then it can eventually drag the index down towards 10,400, he says.
India VIX fell by 2.80 percent from 26.51 to 25.76 levels, which is a bullish sign.
"Gradual decline in volatility which is falling for the last three consecutive week and also at lowest levels of last four months suggest overall bullish stance. Lower VIX with overall rising Put Call Ratio suggests emergence of multiple supports with buy on any intraday decline strategy on the market," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, told Moneycontrol.
The options data suggests the Nifty could trade in the range of 10,400-10,800 in coming sessions.
Maximum Put open interest was at 10,000 followed by 9,000 strike, while maximum Call open interest was at 11,500 followed by 11,000 strike. Call writing was seen in 10,800 strike, then 11,200 strike while Put writing was seen at 10,400 then 10,200 strike.
The Bank Nifty continued its underperformance for the second consecutive session and closed the day on negative note by half a percent at 21,852.40.
The index formed a bearish candle on the daily scale while Inside Bar formation on the weekly scale, which indicates a tug-of-war between the bulls and the bear near to the key hurdle of 22,300-22,500 zone, experts feel."Now it needs to hold above 21,500 levels to show the upside towards recent swing high of 22,300 and 22,500 levels while on the downside, we see supports at 21,250 then 21,000 levels," Taparia said.