Technical View: Nifty forms bearish candle; closing above 200-DMA must for strong upside

The Nifty50 started off the week on a strong note but failed to hold on to its 200-DMA due to sell-off in banking & financials on July 13. The index closed marginally higher, supported by positive global cues and rally in FMCG, IT and metals stocks.

The 50-share benchmark index closed below its opening levels, forming a bearish candle on the daily charts.

The Nifty continued its uptrend but overall it has been in a consolidation mode since last week and moving in a narrow range, hence unless and until the index breaks and closes above 10,900 or 200 DMA, the major upside is unlikely, experts feel.

For time being, Mazhar Mohammad of Chartviewindia.in advised traders to focus on stock-specific opportunities rather than betting on a trendless index.

The Nifty50 opened strong at 10,851.85 and surpassed 200 DMA (10,885) to hit an intraday high of 10,894.05, but the index started gradually erasing some gains in late morning deals and settled off day's high at 10,802.70, up 34.70 points.

"Nifty50 appears to have witnessed profit booking from intraday high of 10,894, after a strong gap up opening, as it tested its 200-day simple moving average whose value is placed at 10,885. This price action resulted in a bearish candle on intraday charts thereby dissipating the enthusiasm of bulls as they made a failed attempt for a range breakout. Hence, the trajectory of the market shall continue to remain directionless unless Nifty registers a strong close above 10,900 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

On a breakout above 10,900 mark, long positions shall be considered with a target placed around 11,250 levels, he advised.

Similarly on the downsides, if the index breaches 10,676, then that shall confirm the weakness and on such a breakdown the index can be eventually dragged down towards 10,450 levels, he feels.

India VIX moved up by 1.02 percent to 25.19 levels.

Options data suggested that the wider trading range for Nifty could be 10,500 to 11,200 zone and immediate range around 10,600 to 11,000 zone.

On option front, maximum Put open interest was at 10,000 followed by 9,000 strike, while maximum Call open interest was at 11,500 followed by 11,000 strike. Call writing was seen in 10,900 and 11,000 strikes, while Put writing was seen at 10,800 then 10,400 strike.

Bank Nifty has been underperforming Nifty index from the last two trading sessions and also adding some built up of short positions in the futures segment. The index closed lower by 309.20 points or 1.38 percent at 22,089.30 and formed a bearish candle on the daily charts.

"It gave a breakdown from the Rising Wedge pattern on the daily chart and sustaining well below the breakdown levels. We witnessed the formation of a Bearish AB=CD pattern on the daily chart of Bank Nifty and Nifty Private Bank index, indicating the possibility of a reversal in coming days," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

"RSI oscillator also gave a breakdown on the daily chart, which doesn't bode well for the bulls. Banking heavyweights have started correcting from higher levels and started showing initial signs of weakness. Now a hold below 22,500 zones could see a profit booking decline towards 22,000 then 21,750 zones while on the upside key hurdle exists at 22,750-23,000 levels," he added.