The Nifty bounced back after breaching its 13-days exponential moving average (DEMA) placed at 9,179 for the second day in a row on Wednesday and made a bearish candle which closely resembles ‘hammer’ kind of formation on the daily candlestick charts.
The Nifty, which opened flat tracking muted trend seen in global markets at 9242.50 slipped to an intraday low of 9,161.80. It bounced back to from its 13-DEMA to reclaim its crucial resistance level of 9,200.
It closed above its 13-DEMA, and 10-DEMA at 9,203, down 33 points from its previous close of 9,237. Formation of a bearish candle after a bull candle in the previous session certainly does not auger well for the bulls and investors should tread with caution.
Investors who went long in the index might have squared off their positions, but if somebody is still continuing with their longs then the stop loss should be placed near its 13-DEMA at 9,179 levels. This level has defended the index so many times in the year 2017.
“The Nifty witnessed decent recovery from its intraday lows of 9,161 levels thereby registering hammer formation on the charts. However, follow-up buying in immediate trading session shall confirm the reversal from 9161 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told moneycontrol.
For the momentum to contour, Nifty should close above 9,274 which is also its record high recorded earlier in the month of April. Once this level is conquered then bulls can extend their rally between 9,350 – 9,400 levels.
“Wednesday’s price action, especially after strong bull candle on relatively higher volumes witnessed on Tuesday, is certainly a disappointing factor and suggesting that markets are still in a vulnerable zone. Traders need to have strict stop loss below 9179 levels on a closing basis and the trigger of this stop shall resume the short term downtrend,” said Mohammad.
On the options front, maximum Put OI was seen at strike price 9,000 followed by 9,100 while maximum Call OI was seen at strike prices 9,300 followed by 9,500.
There is a shift in maximum Call OI from strike price 9,500 to 9,300 strike which is restricted its upside. Fresh Call writing was seen at strike prices 9,200, 9,250 and 9,300 while fresh Put writing is taking place at 8,900 strike.
The Nifty index failed to continue its momentum from the last session. “It formed a Bearish Candle on the daily chart which indicates that decline is being bought, but buying interest is missing at higher levels,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told moneycontrol.
“It closed negative but respected its 13-DEMA and a rising support trend line on daily chart. If it sustains below 9,191 then selling pressure may be seen towards 9,133 and 9,090 while on the upside hurdles are seen at 9,250 and 9,280 zone,” he said.