Technical View | Nifty needs consolidation for upmove towards 19,500

Bank Nifty formed yet another Doji candlestick pattern on the daily scale, indicating the continued tug-of-war between bulls and bears.

The Nifty50 seems to have entered into a consolidation phase after a sharp run-up in the past six consecutive sessions, as the index traded within the previous day's range and closed flat on July 5. Auto, FMCG, oil and gas, and select technology stocks supported the market, whereas the profit booking in banking and financial services stocks limited upside in the index.

The index opened above 19,400 and traded in the range of 19,422-19,340 before closing the session 10 points higher at 19,399, continuing its northward journey for the seventh consecutive session. It has formed an Inside Bar kind of candlestick pattern on the daily charts.

The current consolidation is needed for the next leg of upmove towards the 19,500 mark, which is keenly awaited, with immediate support of 19,300 levels which is expected to be crucial on weekly expiry tomorrow, experts said.

"On the daily charts, it has formed an Inside Bar Pattern indicating consolidation. The hourly Bollinger bands are also contracting indicating that rangebound price action," Jatin Gedia, Technical Research Analyst, Sharekhan by BNP Paribas said.

He believes that the Nifty is in the process of consolidation after a sharp run-up and this consolidation forms a floor for the next leg of upmove.

Over the next few trading sessions, he expects the Nifty to consolidate in the range of 19,500–19,300 and a dip towards 19,300 should be used as a buying opportunity.

The Option data also indicated that 19,400-19,500 is likely to be the next area to watch on the higher side, with 19,300 going to be immediate support.

Per weekly Option data, we have maximum Call open interest at 19,500 strike, followed by 19,400 strike, with meaningful Call writing at 19,500 strike, then 19,800 strike, whereas the maximum Put open interest was at 19,300 strike, followed by 19,000 strike, with Put writing at 19,400 strike, then 19,300 strike.

Bank Nifty

Bank Nifty formed yet another Doji candlestick pattern on the daily scale, indicating the continued tug-of-war between bulls and bears for further market direction. The index managed to hold on to the 45,000 mark throughout the session despite volatility and correction. It underperformed frontline indices, falling 150 points to 45,152 ahead of the weekly expiry scheduled on Thursday.

"Going into tomorrow's expiry, one should look to plan a short straddle with a neutral to positive bias on the Bank Nifty Index. The options writers for tomorrow's expiry are suggesting the same," Rahul K Ghose, Founder & CEO at Hedged said. Short straddle means the selling of Call and Put of the same strike and expiry date.

Also, Bank Nifty has strong support at the 45,000 mark, and has significant Put writing also at this level, he said. "Today's slight profit booking has not deterred these Put writers even a bit and they have actually added to their positions. This further corroborates this hypothesis," he added.

On the broader markets front, the Nifty Midcap 100 and Smallcap 100 indices gained over seven-tenth of a percent respectively, and outperformed benchmarks, while the India VIX jumped to the highest closing level since May 31, rising from 11.70 to 11.88 levels.