Technical View: Nifty forms bearish candle, experts tell traders to avoid index bets

The Nifty50 started off on a strong note but profit-booking in the last couple of hours wiped the day’s gains though the rally continued in mid and smallcaps.

The index formed a bearish candle on the daily charts as closing was lower than the opening level.

The weakness despite a rally in broader space and positive Asian cues could be due to valuations and the candlestick pattern formation indicates that the consolidation may continue in the coming sessions, experts feel.

As the market slipped into a sideways phase, traders should avoid index bets, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

India VIX moved up by 2.32 percent from 20.71 to 21.19 levels. It needs to cool down below 20-18 zone to get the bull going for the next leg of the rally or the market will continue to be choppy.

After opening higher at 11,540.15, the Nifty touched an intraday high of 11,568.90 but started saw profit booking in the last hours and settled 24.50 points down at 11,440.

The Nifty midcap was up 2.6 percent and smallcap climbed 5.6 percent.
"The Nifty50 encountered selling pressure at higher levels hinting that it might have aborted the pullback attempt at today's high of 11,568 levels before signing off the session with a bearish candle. This kind of candlestick formation after retracing 62 percent of the fall from the highs of 11,794–11,185 levels doesn’t not augur well for the bulls," Mohammad said.

The momentum in broader markets remained buoyant as revealed by favourable advance decline ratio. The trend can be expected to remain more sideways ii the trading range of 11,600–11,200. If the index closes below 11,278, then it can be considered as an initial sign of weakness which can eventually threaten the recent bottom of 11,185 levels, he said.

If the bulls manage a close above 11,600, then prospects of retesting the recent swing high of 11,794 being tested again get brighter, Mohammad said.

Option data continued to suggest that the Nifty could remain in a broad range of 11,200 to 11,700 in coming sessions.

On option front, maximum Put open interest was seen at 11,000 followed by 10,500 strike, while maximum Call open interest was at 11,500 followed by 12,000 strike. Marginal Call writing was seen at 11,600 then 11,800 strike while Put writing was seen at 11,200 then 11,400 strike.

The Bank Nifty opened positive at 22,683.35 but failed to go past the immediate hurdle of 22,750 to drift towards 22,000 to hit an intraday low of 22,028.15.

The index formed a bearish candle and closed below its 50-DEMA, down 378.65 points or 1.68 percent at 22,101.30.

"It needs to hold above 22,222 to witness some stability and a move towards 22,750 and 23,200 levels. However, a hold below 22,000 can drag the rate-sensitive index to 21,750 and 21,500," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in Ashok Leyland, TCS, Voltas, Wipro, Max Financial Services, Escorts, Tech Mahindra, UPL, Infosys, SRF, MindTree, Amara Raja Batteries, InterGlobe Aviation and Havells while weakness was seen in Bharti Airtel, Power Grid, Sun Pharma, SBI, Hindalco, HDFC Bank, L&T etc, he added.