Technical View: Nifty forms small bull candle; next target seen at 10650-10700

The Nifty50 which started with a gap on the higher side rose to a fresh record high of 10,631.20 in morning trade on Monday and made a small bull candle on the daily candlestick charts.

The index is now trading well above its crucial short-term moving averages which suggest strength in the ongoing momentum. Investors are advised to stay long with a target of 10,650-10700 in the next few trading sessions.

But, even though the momentum is strong, most of the technical indicators are trading in an overbought zone which suggests that markets could face some selling pressure near key resistance levels.

The index which opened at 10,591 and rose to a record high of 10,631.20. It slipped marginally to 10,588 before closing 64 points higher to a fresh closing high of 10,623.

“The intraday price behavior is quite encouraging as Nifty50 picked up the pace in the latter part of the session and went on to sign off the day with a small bull candle after the gap up opening,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“However, based on the long-term trend studies it can be difficult for the bulls to add much value addition from the current levels without a pause or correction. Besides momentum oscillators reached overbought zone on lower time frame charts which are likely to prevent the bulls from heading to much higher levels beyond 50 – 100 points in next couple of trading sessions,” he said.

Mohammad further added that based on the weight of technical evidence with us it looks prudent to book substantial profits as we head towards the zone of 10650 – 700 levels. Weakness shall get confirmed if Nifty50 slips below 10550 on a closing basis.

India VIX moved up by 4.77 percent at 13.73. VIX has to hold below 13-12.50 zones to support the fresh leg of the rally with a smooth ride in the market.

On the options front, maximum Put open interest was seen at 10400 followed by 10500 strikes while maximum Call OI was seen at 11000 followed by 10600 strikes.

Fresh and significant Put writing was seen at 10600 and 10500 strikes which is shifting is a support while fresh Call writing is seen at 10800 which is giving the scope for the higher side.

“Option band signifies a shift in support to 10500-10550 zones as this strike has seen fresh Put OI congestion. Technically, Nifty formed a Bullish candle with second consecutive runaway gaps and continued its positive momentum after its recent breakout,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“It closed positive with the gains of around 65 points and given the highest daily close. Now index needs to hold above 10550 zones to extend its up move towards 10700 while on the downside supports are seen at 10500 and 10450 levels,” he said.