Bulls take the charge, Bears under attack!

Markets continued to gain momentum for the third consecutive week, where Nifty formed a big bullish candle on the weekly scale. The Nifty index also reclaimed its 61.8% retracement levels of 10,550 on the closing basis. However, the immediate resistance of a 100-day exponential moving average on the weekly scale is placed at 10,750 levels which will act as an immediate hurdle.

As highlighted in the below chart, the Nifty index formed a rising wedge pattern on the daily chart where the upper end of the rising trend line is coming around 10,750 levels. Nifty is also respecting its rising trend line, connecting all the lows starting with 7,511 where the immediate support of this rising trend line is currently placed around 10,200 levels. Now, as long as Nifty respects its lower rising trend line, we can expect the ongoing rally to continue towards 10750 levels.

The momentum indicators and oscillators are very well in the buy mode on a weekly scale which hints that bulls are tightening the grip and current pullback is likely to extend further.

The volatility index IndiaVIX fell by 10% and ended at a 3-month low of 25.7 levels. The overall fall in the volatility is hinting of no major move in the short term which is giving comfort to the bulls.

The options data indicates that the maximum open interest on the put side has shifted to 10,400 strikes. We have also seen fresh put writing at 10,500 strikes which holds the second-highest open interest and also likely to act as a major support in the coming week.

A huge amount of call writing was seen at 11,000 strikes which also holds the maximum open interest followed by 10,600 strikes. So the overall option data indicates that the bulls are having an upper hand and Nifty may trade in a broader range of 10,400-11,000.

The BankNifty index underperformed compared to Nifty and formed a small bullish candle on the weekly scale. On the upside, 22,400 will be a crucial resistance for the BankNifty index and only a move above the same might reflect the clear strength in the market. Thus, one should remain cautious as the BankNifty has rallied significantly and in case of any long positions, follow a strict stop loss of 20,500.

Although on the weekly scale, the momentum indicator and oscillators are very well in the buy mode and to reclaim the positive momentum it has to surpass its immediate hurdle of 22,400 levels and above that next resistance is placed at 23,500.

Looking at the broader market participation, one should focus on the stock-specific action which is likely to continue.

Author: Mr.Nilesh Ramesh Jain, Derivative and Technical Analyst (Investment Services), 3rd July 2020


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