The Nifty50 managed to recoup morning losses in last couple of hours of trade and closed sharply higher on Wednesday, driven by short covering ahead of expiry of December futures & options contracts on Thursday.
The index snapped three-day losses and formed bullish candle on the daily charts, which resembles a Piercing Line kind of pattern.
The strong rally seen in the index took shape of a Piercing pattern which signals a temporary halt to the downtrend. The pattern is formed by two consecutive candlesticks.
The first candlestick is a strong red candle or a bearish candle which is followed by a green or a bullish candle. The bullish candle should cover at least half of the previous day’s red or bearish candle. It is a potential signal for a reversal.
The Nifty50 after opening lower at 10,635.45 (following weak global cues on growth concerns) hit an intraday low of 10,534.55, but managed to recoup losses in last couple of hours of trade and touched a day's high of 10,747.50 on short covering. The index closed 66.40 points higher at 10,729.90.
"Nifty50 appears to have made a strong recovery on the back of huge short recovering, after retracing around 62 percent of its last leg of rally from the lows of 10,333 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
He said this recovery appears to be primarily supported by financials and infrastructure sectors as no other sectoral index gained more than half a percent and advance:decline ratio also skewed in favour of bears which is a cause for concern.
Hence, at this point in time it can be too early to conclude that correction is over at Wednesday's low of 10,534 and trend has reversed, he added.
He said traders will be better off to wait for atleast one day post expiry session to determine the real strength present in this upmove as Nifty50 is still trading below 200 day moving average.
According to Mazhar, more strength can be expected if the said index sustains above its 200 day moving average whose value is present around 10,770 levels. "Meanwhile traders can shift their focus on stock specific opportunities available."
India VIX remained flattish with the marginal gains of 0.17 percent at 15.92 levels. VIX has to hold below 16 zones to get a bullish momentum else tough fight could be back in the market.
On the option front, maximum Put open interest (OI) was seen at 10,000 followed by 10,500 and 10,700 strikes while maximum Call OI was at 11,000 followed by 10,900 strikes.
Meaningful Put writing was seen at all the immediate strikes from 10,650 to 10,500 which suggests that support is intact while Call unwinding was seen at most of the strikes till 11,000 strikes. Option band signifies a trading range in between 10,600 to 10,800-10,850 zones.
Source:https://www.moneycontrol.com/news/business/markets/technical-view-nifty-forms-bullish-candle-ahead-of-fo-expiry-tread-with-caution-3326781.html
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