The Nifty started the week on a strong note with yet another record closing high of 18,477 on October 18 despite nervousness in global markets and an uptrend in oil prices. IT, metals, banking & financials and select FMCG stocks powered the index to end higher for the seventh session in a row.
The index formed a bearish candle that resembled a Doji pattern on the daily chart as the closing was near its opening levels. A Doji candle indicates indecisiveness among the bulls and the bears.
Considering the 1,100 points upmove in just 10 sessions, traders should avoid long side bets in the Nifty, said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in.
Volatility spiked due to Call unwinding pressure. India VIX, which measures the expected volatility in the market, rose 8.97 percent from 15.77 to 17.18 levels.
“Spike in volatility suggests a volatile move could be seen but the main reason for the spike in volatility was Call unwinding pressure in the market. Now VIX needs to cool below 15-14 zones to continue the smooth market ride,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
The broader markets also joined the rally as the Nifty midcap index was up 1.17 percent and smallcap index gained 0.7 percent.
With the index gaining almost 1,100 points in 10 sessions, the market may have reached a point where consolidation looks inevitable, Mohammad said.
Hence, “in the next trading session if the Nifty trades below 18,445 levels for at least 30 minutes, it can attract profit-booking which should ideally drag it down towards 18,350 levels,” he said.
As momentum is strong, if the index manages to stay above 18,500 for at least two sessions, a target of 18,900 can be expected, Mohammad said.
On options front, maximum Call open interest was seen at 18500 followed by 19000 strike, while maximum Put open interest was seen at 17,500 followed by 18,000 strike.
Minor call writing was seen 18,900 then 18,700 strike while Put writing was seen at 18,500 than 18,400 strike. Option data suggests an immediate trading range for the Nifty50 could be between 18,200 to 18,700 levels.
The Bank Nifty opened gap up with 450 points and hit a new high of 39,947.60 intraday. Buying in select banking stocks supported the index that closed at 39,684.80, up 343.90 points.
The index formed a bearish candle, which, too, resembled the Doji pattern on the daily scale.
“But such a formation is seen after testing the upper boundary of last 38-day old ascending channel. Hence, pattern implication can be significant and unless this counter closes above 40,000 levels, long positions should be avoided, whereas a close below 39,375 can trigger a short-term downswing,” said Mohammad.
The Bank Nifty has to hold above 39,500 to witness an upmove towards 40,000 and 40,500, while on the downside, major support is seen at 39,300 and 39,000 levels, Taparia said.
On the stock front, a bullish setup was seen in Tata Power, Vedanta, NALCO, IRCTC, PNB, Bank of Baroda, Hindalco, Aarti Industries, Infosys, Dixon Technologies, Tech Mahindra, JSW Steel, Bharat Electronics, ICICI Bank, Canara Bank, ITC, Maruti Suzuki and Escorts, he said.
Weakness was seen in Amara Raja Batteries, Polycab India, Cadila Healthcare, HCL Technologies, Godrej Consumer Products, Dr Reddy’s Labs, and Dr Lal PathLabs.
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