Technical View: Nifty on track to hit record highs; forms bullish candle on daily charts

February 11, 2008: The Sensex dropped 4.57 percent within a day, as the Index shed 796.43 points. The benchmark Index fell 833 points, or 4.78 percent and closed at 16,630 on growing global worries over slowing economic expansion. The reasons cited for this fall were weak global markets and disappointing corporate earnings.

The Nifty50 which reclaimed 10,400 in the opening tick is all set to hit record highs this week. The index which started with a gap on the higher side closed above its crucial resistance level placed around 10450 which made a strong bullish candle on the daily charts.

The index formed a bullish candle for the second consecutive day in a row on Tuesday pushing the index well above 10450. It rose to an intraday high of 10,472 but pared some gains and closed 74 points higher at 10,463 which is just 27 points short of hitting its lifetime high at 10,490.

Riding on positive global cues and BJP victory back home in Gujarat and Himachal Pradesh, the broader market has witnessed a lot of actions this week. The S&P BSE Midcap and smallcap indices hit a fresh record high.

“Indian benchmark indices edged higher after BJP’s victory in Gujarat and Himachal Pradesh on rising hopes of continuous reforms in the coming months. The Nifty index inched closer to test fresh lifetime highs,” Jayant Manglik, President, Retail Distribution, Religare Securities Lt told Moneycontrol.

“The broader market indices; i.e. BSE Smallcap and BSE Midcap hit lifetime highs with a sharp rally during the second half of the trading session,” he said.

The index which is now trading above its short-term moving averages is all set to hit fresh record highs if not in Wednesday’s session then most probably this week.

Traders are advised to ride the rally with strict stop losses placed below 10,400. The index has strong support placed near 10,330-10350 levels while resistance is placed near 10600.

“It was heartening to see bulls cementing their gains with a small but solid bull candle in Tuesday's session after the channel breakout witnessed in Monday’s trading session. This breakout above 10350 levels is throwing up a new target placed on 10690 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“However, on long-term charts, critical resistance points are placed between 10600 – 650 levels. Hence traders are advised to ride this rally by placing a stop below 10400 levels on closing basis for a target placed in the zone of 10600 – 650 levels,” he said.

India VIX fell down sharply for third consecutive sessions by 7.11 percent at 12.18. India VIX has fallen down by 27 percent in last three sessions and needs to hold below 13-12.50 zones to get the smooth ride.

On the options front, maximum Put open interest was seen at 10000 followed by 10200 and 10300 strikes while maximum Call OI is at 10500 followed by 10600 strikes. Fresh Put writing was seen at 10400 strikes while Call unwinding started to see at all the immediate higher strikes.

“Put writing at a higher strike with Call unwinding suggests shifting of the support to higher levels. Option band signifies immediate trading band in between 10300 to 10600 zones,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Nifty is just a few points away from its lifetime high and registered a highest daily close ever. It formed a bullish candle on the daily chart and set to head towards new high territory,” he said.

Taparia further added that it has to continue to hold above 10380-10400 zones to extend its move towards 10550-10600 zones while on the downside supports are seen at 10330 levels.