Technical View | Nifty likely to consolidate around 18,500, volatility hits over 1-month low

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The Nifty50 continued its rangebound action for yet another session and closed with moderate gains on June 2, snapping two-day losses and forming an Inside Bar kind of candlestick pattern on the daily charts.

The index largely traded positive for a major part of the session barring a small dip in the morning. It settled at 18,534, up 46 points after hitting an intraday high of 18,574 and low of 18,478, while on the weekly scale, there was a bearish candlestick pattern formation but continued higher highs formation for the 10th consecutive week which is a positive sign.

The Nifty50 managed to get back above the 18,500 mark amid volatility, which is expected to remain crucial for further market direction in the coming days. If the index holds the same, then it may approach 18,600-18,700 levels again, whereas 18,400-18,300 is likely to act as a support, experts said.

"A small negative candle was formed on the daily chart with minor upper and lower shadows. Technically, this pattern indicates the formation of an Inside Bar with overlapping candles. Present consolidation could be in line with the higher bottom formation of the pattern. The higher bottom reversal pattern has not been confirmed yet," Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.

By considering previous consolidations in the recent past and the negations of such bearish patterns subsequently, one may expect an upside bounce in the market in the coming week, he said, adding immediate support is at the 18,400-18,300 band and the next upside hurdle is around the 18,650-18,850 levels.

The Option data indicated that the 18,600 strike, which has maximum Call open interest, is expected to be a crucial resistance area, followed by the 18,500 strike with meaningful Call writing at the 18,600 strike, then the 18,800 strike. On the Put side, we have maximum open interest at 18,500 strike, followed by 18,600 strike, with writing at similar strikes at a similar pace.

"The Nifty Index today saw build-up in both the 18,500 Puts and the 18,600 Calls for this week's expiry signalling a rangebound movement in the week to come," Rahul Ghose, Founder & CEO at Hedged said.

He further said Nifty currently has a congestion zone between 18,600 and 18,700, which it needs to take out in order to continue to move towards the upside, whereas the short-term support levels are at 18,460, which is the first line of defence and 18,200-18,000 is the most critical support below which the trend changes to the downside.

Bank Nifty has also seen a similar kind of rangebound trend and formed an Inside Bar kind of pattern on the daily charts. The index rose 148 points to 43,938, making lower highs formation for the third straight session.

The index has formed a bearish candlestick pattern with upper and lower shadows on the weekly scale, after closing 0.18 percent down.

"Bank Nifty has to cross and hold above 44,044 to make an up move towards 44,250 levels, then 44,500 levels, whereas on the downside support is expected at 43,750 and 43,500 levels," Chandan Taparia, Senior Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Volatility has been cooling down considerably and thus in turn creating swings within a smaller range in the indices making it choppy for most part of the session. India VIX, which measures the expected volatility in the next thirty days for the Nifty, was down by 4.07 percent from 11.50 to 11.13 levels, the lowest closing level since April 28.