Technical View: Nifty forms bullish candle, 11,238 crucial for bulls to move higher

The Nifty50 remained strong through July 23 session as it recouped the previous day's losses to close above 11,200 for the first time since March 5, 2020. The rally was led by banking & financials and Reliance Industries.

The index closed at four-and-half-month high and formed a bullish candle on daily charts following a Hanging Man formation in the previous session. The closing was higher than opening levels too.

But experts are not convinced with the rally, given the current chart structure. The index has to close above 11,238, which can take the Nifty much higher from current levels, they say.

Traders should remain neutral but intraday traders can consider going long if the Nifty sustains above 11,250 for at least 30 minutes in the coming session and look for a target in 11,350 –11,390 zone, said Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in.

India VIX fell by 0.96 percent to 24.64 levels. Overall, lower volatility has been supporting the bullish scenario and every intraday decline is being bought.

The Nifty50 opened flat at 11,135 but gained strength to hit an intraday high of 11,239.80. The index signed off at 11,215.50, up 82.90 points.

"Chart structure is not convincing enough to completely favour a long-side trade with high conviction," Mohammad said.

"In fact, last 21 sessions of price action chalked out an ascending channel with multiple touchpoints and for the last three trading sessions, the Nifty appears to be struggling at the upper boundary of the said channel. Hence, a decisive breakout in the form of a strong close above 11,238 is required to instil confidence among bulls for the next leg of the move," he said.

In that scenario targets can be in the zone of 11,400 - 11,500 levels, he said.

However, "a struggle around upper boundary of 21-day-old ascending channel, with deeply overbought levels on daily and certain weekly momentum oscillators are strengthening bearish sentiment too. Moreover our twin momentum oscillators generated a sell signal in today's session," said Mohammad. He expects the Nifty to remain sideways with a negative bias for the next couple of trading sessions.

Options data suggested a significant shift in the trading range for the Nifty to 11,000 to 11,400 levels, from 10,800 to 11,300.

On the options front, maximum Put open interest was seen at 10,000 followed by 11,000 strike, while maximum Call open interest was seen at 11,500 followed by 11,000 strike. Call writing was seen at 12,000 and 11,200 strike, while Put writing was seen at 11,000 and 11,200 strike.

The Bank Nifty opened marginally lower but buying was seen for most of the session, extending gains towards 23,100 levels.

The index closed 201.30 points higher at 23,083.90 and formed an Inside Bar candle as it traded in the range of the previous session but it managed to close above 23,000 levels.

"Overall, the trend is positive with consolidation breakout and supports are gradually shifting higher. Now it needs to continue to hold above 22,750 to witness an upmove towards 23,500 zones while on the downside, support is seen at 22,500 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

Positive setup was seen in Reliance Industries, Havells, ICICI Bank, Apollo Hospitals, Eicher Motors, SBI and Just Dial while a weak structure was seen in Petronet LNG, Balkrishna Industries, Axis Bank and Shree Cement, he added.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.