Technical View: Nifty forms bullish candle, 11,794 crucial for further uptrend

The Nifty50 traded high throughout on October 6 and closed at a seven-month high amid expectations of better Q2FY21 results. The rally was also driven by banking & financials, auto and select IT stocks.

The index gained for the fourth consecutive session and formed a bullish candle on the daily charts as closing was higher than opening levels.

Experts say the rally will continue and if the index decisively surpasses the intraday high of 11,794 seen on August 31, then there can be a strong uptrend, though the Nifty is near overbought territory.

As there are no sell signals, traders can remain long with a stop-loss below 11,590 on a closing basis and look for a target in the 11,750-11,800 zone where they should book profits, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

After opening 100 points higher at 11,603.45, the Nifty extended gains in the last hour and hit an intraday high of 11,680.30. The index rallied 159 points or 1.38 percent to close at 11,662.40, the highest closing since February 26.

India VIX was down by 0.33 percent from 19.70 to 19.64 levels. VIX needs to cool down further for the bulls' to keep their grip on the market, experts said.

"If the index sustains above 11,564 levels on a closing basis, the bulls should remain hopeful of retesting the corrective swing high of 11,794 levels registered on August 31," Mohammad said.

However, almost a vertical run up, from the lows of 10,790, in just seven sessions has put the indices into overbought territory that can be a cause for concern though a weakness can be expected only on a close below 11,564, he said.

The options data indicates that the immediate trading range for the Nifty has been shifted to 11,400-11,800 from 11,300-11,700

On the options front, maximum Put open interest was seen at 10,500 followed by 11,000 strike, while maximum Call open interest was at 12,000 followed by 12,500 strike. Marginal Call writing was seen in 12,000 and 12,200 strike while Put writing was seen at 11,600 then 11,500 strike.

The Bank Nifty opened positive at 22,673.05 and remained strong. After a long consolidation, it managed to surpass the key hurdle of 22,750 and headed towards 22,900 levels.

It has been making higher highs-higher lows from the last three trading sessions and given the highest daily close of the last 20 trading sessions. The index climbed 482.75 points or 2.16 percent to 22,853.70 and formed a bullish candle.

"Now it needs to hold above 22,500 levels to witness an upmove towards 23,200 then 23,500 while on the downside, key support exists at 22,222 then 22,000 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.