Technical View | Nifty forms bullish candle, ends at record closing high; rangebound move seen

The bulls regained their mojo after swinging higher and dipping to near closing levels before recovering - all in the morning; and then extending gains sharply as the day progressed on May 24.

The Nifty50 opened higher at 11,748 and immediately started wiping out early gains to hit a day's low of 11,658.10, but showed recovery in the morning itself and extended gains gradually to touch an intraday high of 11,859 in late trade. The index closed 187.10 points higher at 11,844.10.

This could be a short covering after the index fell from its historic high on May 23, the day of the Lok Sabha election results.

The index ended at record closing high and formed bullish candle on daily as well as weekly charts. For the week, the Nifty rallied 3.8 percent.

After recovery from the day low on short covering indicated that the market may remain rangebound in coming sessions, an upside is possible only in case the index crosses its previous record high, experts said.

"Bulls retained their mojo as the Nifty50 strongly recoiled from the intraday lows of 11,658 levels before signing off the session with a decent bullish candle formation. However, May 24th’s price action is appearing to be more like an upward reaction to the big fall witnessed on May 23 from the highs of 12,043 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

"Nevertheless in the next session, if Nifty trades beyond 11,859 levels at least for one hour then it can extend its strength towards 11,955 levels," he said.

Hence, for time being, the market may continue to remain in a range of 12,000–11,600 without bigger upsides unless a fresh breakout is witnessed beyond 12,043 levels, he added.

On the downsides, critical support for short term traders appears to be placed in the zone of 11,614–11,591 levels close to which fresh buying can be initiated with a stop below 11,590 as a breach of this level on the closing basis can drag down the indices further towards 11,420 levels, Mohammad explained.

India VIX fell sharply by 15.12 percent to 16.46 levels. Volatility index corrected by 41 percent during the week from 28.08 to 16.46 levels.

During the week, it made a 44-month high of 30.18 but post the election outcome fell drastically to 16.45 levels.

The decline in VIX suggests that now short term stability and formation of the higher base is seen in the market, experts said, adding option band signifies a trading range between 11,600 to 12,100 zones.

On the options front, maximum put open interest (OI) is at 11,000 followed by 11,500 strikes while maximum call OI is at 12,500 followed by 12,000 strikes. Put writing is at 11,700 strikes while minor call writing is at 12,100 then 12,200 strike.

"Nifty index formed an Inside Bar on the daily scale as it traded inside the wider trading range of election day while a bullish gap up candle on a weekly scale which indicates that bulls are holding the tight grip in the market," Chandan Taparia, Associate Vice President and Analyst-Derivatives at Motilal Oswal Financial Services said.

It has to continue to hold above 11,750 zones to extend its move towards 12,000-12,040 zones while support is seen at 11,666-11,650 zones, he added.

Bank Nifty has been making higher lows from the past six consecutive sessions and closed the week with the decent gains of around 6 percent. It made a new lifetime high of 31,705 on the election outcome day and had a highest daily and weekly close above 31,200 zones.

The index closed 803.45 points higher at 31,212.55. It has seen buying an interest in most of the private and PSU banks and a follow-up buying could lead them for fresh breakout territory, experts said.