Technical View | Nifty may see trend reversal at 17,800; Bank Nifty shows bearish divergence

Representative image.

The Nifty50 remained in a positive terrain throughout the session and surpassed the near-term resistance of 17,700 while taking crucial support at 17,500 on April 11. The index has formed a small-bodied bullish candlestick pattern with long upper and lower shadows on the daily charts, which resembles a High Wave kind of pattern formation, indicating volatility and raising the possibility of some kind of reversal as the index gained for the seventh consecutive session.

The index opened higher at 17,705 and hit an intraday high of 17,749, but came off the day's high in the afternoon to touch a day's low of 17,655. It showed smart recovery in the later part of the session and closed at 17,722, up 98 points.

The Nifty50 seems to be moving towards the high of March month (17,800), where it could see some kind of short-term profit taking, while any kind of reversal may take an initial support at 17,500, followed by 17,400-17,200 area, experts said.

"A small body of positive candle was formed on the daily chart with upper and lower shadow. Technically, this pattern indicates the formation of a high wave type candle pattern. Normally, such high wave formation after a reasonable upside indicates high volatility in the market and sometimes they act as a top reversal pattern post confirmation," Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.

He says the underlying trend of Nifty continues to be positive.

"Though the Nifty is advancing gradually on the upside, its consistent upmove above the hurdles signals more upside ahead. A decisive movement above 17,800 levels is expected to open the next upside target of 18,200 levels in the near term," he said, adding that immediate support is at 17,650 levels.

On the Option front, we have seen the maximum Call open interest at 17,700 strike, followed by 18,000 strike and 17,800 strike, which are expected to be the crucial resistance area for the Nifty50, and hence there could be the possibility of another 300 points upside. The Call writing was seen at 17,900 strike, followed by 17,800.

On the Put side, the maximum open interest was seen at 17,700 strike, followed by 17,600 strike and 17,500 strike, which may act as a support area for the Nifty50, with writing at 17,700 strike, and then 17,500 strike.

"The Open interest data still suggests that the uptrend is intact and buying on dips is the strategy to be deployed," Rahul Ghose, Founder & CEO at Hedged said.

Banking was the leading sector for today's upside, with the Bank Nifty climbing 532 points or 1.3 percent to 41,366. The index has seen a breakout of the long downward sloping trendline adjoining multiple touchpoints on the higher side from December 15 last year till April 6 this year, but formed a Hanging Man kind of pattern formation on the daily charts, which is a bearish reversal candlestick usually formed at the end of an uptrend or at the top.

Also, there was a bearish divergence formation with the Bank Nifty making a lower high and the momentum indicator RSI (relative strength index) making a higher high between January 24 and April 11, indicating some kind of trend reversal.

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