Technical View: Nifty gains for third day but forms bearish candle, 11,394 crucial for bulls

The Nifty50 continued its uptrend for the third consecutive session on August 19, closing above the 11,400-mark but formed a bearish candle on the daily charts as the closing was lower than the opening tick.

Banking and financial stocks and Reliance Industries supported the market, but a correction in technology and FMCG stocks limited gains.

After a strong breakout in the previous session, the Nifty remained rangebound on August 19 with a positive bias, which cast doubts about the sustainability of the uptrend in the coming sessions. If the index fails to hold on to 11,394, the day's low,  then there could some selling pressure, experts say.

But cooling volatility will continue to support the bulls. India VIX fell by 2.31 percent to 19.95 levels, which indicates that the bullish stance could continue with buy on decline strategy in the market.

Traders should hold long positions, if any, with a stop below 11,390 on a closing basis, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

"It appears to be a tepid response from the bulls to the breakout witnessed in Tuesday's session as the Nifty traded in an extremely narrow range of 66 points. Hence, in the next trading session it critical for the bulls to sustain above 11,394 levels, as a breach can attract intraday selling pressure, whereas a close below 11,370 can activate bears once again and such a close should also be construed as the failure of the recent breakout," Mohammad said.

In that scenario, initial targets on the downside can be towards 11,180 levels, he said.

However, stabilising above 11,400 levels on weekly expiry session can eventually facilitate an upmove, initially towards 11,536 levels, where some resistance can be expected unless the bulls bridge the bearish gap registered on February 28, he added.

Option data indicated that trading range for Nifty could remain around 11,200 to 11,600 levels for the coming few days.

Maximum Put open interest was seen at 11,000 followed by 10,000 strike, while maximum Call open interest was at 11,500 followed by 12,000 strike. Call writing was seen at 11,800 and 12,000 strike while Put writing was seen at 10,700 then 11,400 strike.

The Bank Nifty opened positive at 22,315.40 but consolidated in the range of 200 points for the entire trading session to close near 22,300 levels.

The index settled at 22,285.90, up 115.30 points and formed a Doji candle on the daily scale as dips are being bought into while hurdles are intact at higher levels.

"Overall trend is positive and now it has to continue to hold above 22,000 to witness an upmove towards 22,750 then 23,000 zones while on the downside, immediate support is seen at 21,750 then 21,400 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

Positive setup was seen in Zee Entertainment, GAIL, Tech Mahindra, Jubilant Foodworks, JSW Steel and Maruti Suzuki while a weak structure was seen in Bajaj Auto, ONGC, Nestle India, Kotak Mahindra Bank, Infosys and Cipla, he added.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.