Technical View: Nifty forms bullish candle, MACD gives a buy signal but experts say book profits

The Nifty50 continued its rally for fifth consecutive sessions to close near four-and-half-month high on July 21 as global shares traded strong on successful progress in vaccine trials and EU leaders agreeing to a massive stimulus plan.

The index closed above 11,150 levels and formed a bullish candle on daily charts, as the closing was higher than the opening, backed by banking & financials and auto stocks.

The Nifty seems to be near the overbought zone, so profit-booking would be the right strategy, though the bulls remain in a strong position, experts say.

"Though momentum looks in favour of the bulls, traders are advised to remain neutral as risk-reward ratios may not be in their favour at this point," said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in.

India VIX fell by 1.14 percent to 24.42 levels. Overall, lower volatility is supporting the bullish stance with a higher market base.

An interesting thing visible on the charts was a buy signal triggered by the MACD indicator on the daily charts but experts see a limited impact with the index near overbought zone.

The Moving Average Convergence/Divergence indicator is basically a refinement of the two moving averages systems and measures the distance between the two moving average lines.

After opening strong at 11,126.10, the Nifty touched an intraday high of 11,179.55 and a low of 11,113.25. The index closed at 11,162.30, the highest level since March 5, up 140.10 points or 1.27 percent.

"Intraday trading range remained extremely narrow for the second session in a row with 66 points, which can be a cause of concern. As the session progressed, more stocks slipped into the negative territory, hinting at stock-specific profit-taking, though at the end of the session, the bulls still remained in an advantageous position with a positive advance-decline ratio," Mohammad said.

Technical oscillators/indicators were also providing a mixed picture, with some momentum oscillators on both the daily as well as the weekly charts slipping into overbought zone, whereas laggards like MACD were generating a fresh buy signal on the daily chart.

As the Nifty is staring at a critical near-term resistance point of 11,244, it would be prudent to book profits and remain neutral on the index, he said.

If the strength continues beyond 11,250, then the rally can get expanded to 11,389 levels, Mohammad said.

The options data suggested that the immediate trading range for the Nifty at 10,800-11,300 levels higher from the earlier range of 10,700-11,200.

On the options front, maximum Put open interest was at 10,000 followed by 11,000 strike, while maximum Call open interest was at 11,500 followed by 11,000 strike. Call writing was seen in 11,600 and 11,500 strikes, while meaningful Put writing is seen at 11,000 and 11,100 strike.

The Bank Nifty opened strong at 22,639.85 and gained 540 points to hit an intraday high of 22,861.90. The index closed 460.20 points or 2.06 percent higher at 22,782 and formed a bullish candle on the daily scale, as buying interest was seen throughout the session.

The index has gained more than 1,300 points in three trading sessions, with structures of higher highs-higher lows on the daily frame.

"Supports are gradually shifting higher and now till it holds above 22,500 levels, it can witness an upmove towards 23,000 then 23,250-23,500 levels. On the downside, supports are seen at 22,500 then 22,250 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

Positive setup was seen in ICICI Bank, Reliance Industries, Escorts, SBI Life, IOC, Maruti Suzuki, Eicher Motors and HDFC while a weak structure was seen in Mindtree, Info Edge, Havells and Petronet LNG, he added.