Technical View: Nifty forms bearish candle ahead of F&O expiry, outlook favours bulls

The Nifty50 after opening higher attempted many times to move near its earlier record high amid rangebound trade but failed to do so due to selling pressure at higher levels on Wednesday. The index ended flat with a negative bias ahead of expiry of July derivative contracts, forming bearish candle on the daily candlestick charts, which also resembles 'Spinning Top’ kind of pattern.

Spinning Top is often regarded as a neutral pattern which suggests indecisiveness on the part of both bulls as well as bears. It can be formed in an uptrend as well as in a downtrend.

The Nifty Midcap index also ended flat while the sectoral trend was mixed. The 30-share BSE Sensex managed to end at record closing high again, rising 33.13 points to 36,858.23.

The Nifty50 after opening higher at 11,148.40 attempted many times to move near its record high of 11,171.55 but failed to do so and remained in a 44-point range at around 11,113.25-11,157.15 throughout the session. The index closed 2.30 points lower at 11,132 after three consecutive positive sessions.

"Nifty50 continued its consolidation phase for second day in a row as it signed off the session with an indecisive formation, forming small bearish candle which also resembles Spinning Top after moving in a 44-point narrow range ahead of the expiry session," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

According to him, a major move in either of the directions can be expected in next couple of trading sessions as we head for a fresh F&O series.

He said on the downsides it looks critical for the indices to sustain above 11,000 as a close below this level may usher in a short term pressure on the markets. "For time being upsides may get capped in the zone of 11,150–11,171 unless market witnesses a strong upswing beyond 11,171. In such a scenario initial target of around 11,250 can be expected."

Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan said the index posted a negative daily close after three consecutive positive sessions. "Nevertheless, overall Technical outlook continues to be in favour of the bulls."

Once the key hurdle of 11,171 gets taken out, the benchmark index can march towards 11,450 in the short term, he said, adding on the downside, 11,030-11,020 shall act as a key support zone for any minor degree dip.

India VIX fell by 1.18 percent at 12.32 levels. VIX has been falling down from last five sessions and decline in with rising Put Call Ratio suggests that Put writers have taken the market in their tight grip.

On the option front, maximum Put open interest (OI) was seen at 11,000 while maximum Call OI was at 11,200 strike. Put writing was seen at 11,050 strike while Call writing at 11,150, 11,200 and 11,250 strikes. Option band has been shifting its trading range to higher band in between 11,050 to 11,200 zones, experts said.

"Nifty index continued its formation of higher highs - higher lows for last four sessions but closed on a flat to negative note and also missed to hit its life time high of 11,171 zones. However overall trend is intact to positive and supports are gradually shifting higher," Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.

He said now the index has to continue to hold above 11,080 zones to extend its move towards 11,171 then 11,200 levels while on the downside supports are seen at 11,050 then psychological 11,000 zones.

Bank Nifty formed an Inside Bar and traded in a tight range of 135 points ahead of its monthly Derivatives expiry.

Now the index has to continue to hold above 27,000 zones to witness an up move towards 27,165 then 27,250 zones while on the downside major support exists at 26,800-26,750 zones, Taparia said.