Technical View | Nifty rebounds; rangebound trade may continue unless index surpasses 19,900

Rangebound trade may continue in the Nifty.

The Nifty50 rebounded after two days of correction and closed, as expected, above 19,700 on July 31. To sustain the momentum from here on, the index requires to give a decisive close above 19,870-19,900, which can break the ongoing consolidation and take the index beyond the 20,000 mark. But till then, the rangebound trade can't be ruled out with crucial support at 19,600-19,500 levels, experts say.

After initial volatility, the Nifty50 gained strength and traded higher in the rest of the session to hit a day's high of 19,773. The index settled the final trade at 19,754, up 108 points, which is above the 5-day EMA (exponential moving average of 19,711), with above-average volumes. All the sectoral indices, barring FMCG, closed in green.

The index has formed a bullish candlestick pattern with a small lower shadow on the daily charts, making a higher high- higher low formation. On the weekly scale, momentum indicator RSI (relative strength index) with above 70 levels also showed positive bias, with MACD (moving average convergence divergence) sustaining well above zero line with bullish crossover.

"After forming a series of higher highs and higher lows over the last two months, the Nifty seems to have formed a minor degree of lower highs and lower lows in the last 4-5 sessions amidst range movement. This pattern could be reflecting ongoing consolidation in the market," Nagaraj Shetti, technical research analyst at HDFC Securities said.

However, a sustainable move above 19,870 is expected to negate this bearish pattern.

He believes that the Nifty's underlying trend remains choppy. "A decisive move above the immediate resistance of 19,870 could open a sharp upside towards the next resistance of around 20,000 mark in the near term. Immediate support is placed at 19,600," Shetti said.

As per Options data, we have seen maximum Call open interest at 19,800 strike, followed by 20,500 strike, with meaningful Call writing at 20,000 strike, then 19,900 strike. However, the maximum Put open interest was seen at 19,600 strike, followed by 19,700 strike, with Put writing at 19,700 strike, then 19,600 strike.

The above data signalled that 19,800-19,900 is expected to be the critical resistance area for the Nifty50 to march towards 20,000 levels, with immediate support at 19,700-19,600 levels.

Bank Nifty

Apart from the Nifty IT, the Bank Nifty also provided good support to the market, rising 183 points to 45,651 and forming a small-bodied bullish candlestick with minor lower shadow on the daily charts.

The index traded within the previous day's range and has successfully defended the 20-day EMA (exponential moving average of 45,360) for yet another session, which may be crucial for further downside, whereas holding above 45,700-45,800 can help the index move towards 46,000 mark.

"Bears have been holding strong around the 45,700-45,800 zone, creating a significant resistance area. A break above this resistance zone would signal the bulls taking complete control and potentially lead the index to fresh all-time high levels," Kunal Shah, senior technical & derivative analyst at LKP Securities said.

However, he feels that if the index breaks below 45,300 levels, it may indicate further downside potential towards 45,000-44,700, as the bears gain momentum and exert additional selling pressure.

The broader markets performed better than the benchmarks on positive breadth. The Nifty Midcap 100 and Smallcap 100 indices gained 1 percent and 0.9 percent respectively as about two shares advanced for every falling share on the NSE, while the volatility remained near historic lows, though the India VIX closed at 10.41 levels, up from 10.14 levels in the previous session.