Technical View: Nifty makes ‘small bull candle’; time to book some profits

The Nifty50 which opened with a mild gap on the upside in morning trade on Monday hit a fresh record high of 9928.20 but moved in a narrow range throughout the trading session and made a small bull candle on the daily charts.

A 'Small Bullish' candle is formed when the index trades higher throughout the sessions but in a defined range. The length of the candle signifies the range for the day.

A short bull candle formed after a hanging man pattern negates the negative pattern but technical charts are still of the view that investors will be better off booking some profits off the table.

It is important for the index to hold above 9800-9850 for the upside to continue while key resistance levels are placed at 9,950-10,000. After a sharp rally of over 400 points from a recent low of 9450, investors can look at booking some profits because markets are hinting at overbought levels.

“The Nifty50 signed off the day after moving in an extremely narrow range of 33 points which resulted in a small bull candle resembling an indecisive pattern called Doji. Monday’s positive close is once again on the back of negative advance decline ratio which is certainly a cause for concern,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

The ratio (AD Ratio) is turning negative at life time highs suggests pressure on the broader markets where as Nifty appears to be concealing the real picture with positive closes.

On the back of strong technical evidence, analysts’ urge market participants to give priority to preserve the profits rather than playing for last positive tick of the market which is nearing.

“Our technical parameters on lower time frame charts are turning negative it will be prudent on the part of traders including investors to take some money off the table as even in terms of Elliot Wave theory the rally from the lows of 9448 is looking like the last leg to conclude one price cycle of a lower degree which will then have the potentiality of triggering a bigger correction,” said Mohammad.

On the options front, maximum Put OI was seen at 9800 followed by 9700 strikes while maximum Call OI is at 10000 followed by 9900 strikes.

The index has been making higher top – higher bottom formation and supports are gradually shifting higher led by fresh Put writing which has a bullish implication for ongoing market trend.

Significant Put writing was seen at 9900, 9950, 9850 and 9800 strikes which are continuously shifting its support to higher zones while Call writing is seen at 9950 to 10200 strikes. The option band is gradually shifting higher with a rise in Put Call Ratio.

“PCR OI Based on Open interest of Nifty is at 5 years high levels, rising Put Call Ratio suggests that Put writers are more comfortable and confident for the market rally but much higher Put Call Ratio some time gives a sign of overbought scenario,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“On the technical front, Nifty has to continue to hold 9,900 zone to witness an up move towards 9950-10000 zones while on the downside supports are seen at 9850 then 9820 mark,” he said.