Technical View: Nifty forms bullish candle after record close, but reaches extremely overbought levels

The Nifty 50 remained strong throughout the session to hit a fresh record high on November 9 as bulls were relentless. The index gained for the sixth consecutive session and formed a bullish candle on the daily charts as closing was higher than opening levels.

Positive global cues and Democratic Party's clear majority in the US election with Joe Biden becoming country's 46th President lifted sentiment.

As the momentum oscillators indicated, the index has reached an extremely overbought zone and profit booking can't be ruled out, but if the rally extends, it can lead the index over 12,600 mark, experts feel.

For the time being, Mazhar Mohammad of Chartviewindia.in advised traders to remain neutral and refrain from shorting, in anticipation of correction, as there are no sell signals on charts.

The Nifty50 started off the day on a strong note at 12,399.40 and extended gains to touch an intraday record high of 12,474.05. The index ended at record closing high of 12,461, up 197.50 points or 1.61 percent.

"Bulls cheered as Nifty50 continued its upward thrust and registered a new lifetime high with a comfortable close above previous life high of 12,430 levels. However, with 6 consecutive positive closes, Nifty appears to have reached extremely overbought levels as hinted by some of the momentum oscillators on lower time frame charts," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

Moreover, the current price of the index is way above its short term moving averages warranting a correction as prices can't sustain abnormally above its mean for a longer period, and hence, some sort of correction or pause can't be overruled in next one or two trading sessions, he said.

In case the Nifty continues to move higher by defying gravity then it can head into the near term resistance zone placed between 12,650 – 12,700 levels, he feels.

A close below 12,280 levels may trigger much needed short- term downswing, according to him.

India VIX fell by 1.89 percent from 20.50 to 20.11 levels. The consistent fall in volatility after the end of the US election gave stability to the market and helped the market reach new record levels.

Options data also indicated a new wider trading range at 11,800 to 12,700 levels, which shifted higher from 11,800-12,500 levels earlier.

On the options front, maximum Put open interest was seen at 12,000 followed by 11,000 strike while maximum Call open interest was at 13,000 followed by 12,500 strike. Marginal Call writing was seen in 12,900 and 13,000 strike while Put writing was seen at 12,000 then 12,400 strike.

Bank Nifty opened gap up at 27,088.95 and continued its positive momentum to hit a day's high of 27,595.00 with buying in all the banking stocks.

It continued moving upwards throughout the day to close the session with gains of 735.15 points or 2.74 percent at 27,534.10 and formed a strong bullish candle on the daily scale.

"The index has been making higher highs - higher lows from the last six trading sessions. Now it has to continue to hold above 26,850-27,000 levels to witness an upmove towards 28,000," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.