F&O: Chart structure suggests Nifty rally just a pullback of the correction

By Chandan Taparia

Nifty50 opened marginally in the red on Wednesday due to the announcement of complete lockdown. But the bulls were active from initial trades, and continued to pull the index higher as the session progressed. As a result, Nifty posted the biggest daily gain since May 2009 and formed a Bullish Marubozu kind of candle on the daily chart on the back of sustained buying throughout the day with strong market breadth.

The index closed above the high of last two sessions, which is a sign of relief for the bulls. The RSI oscillator is showing a positive divergence on the daily scale and prices also turned northward. However, the overall chart structure remains negative and this is a mere pullback move of the ongoing correction. At the current juncture, Nifty’s key resistance is placed at 8,555, and then 8,888 level, while supports are now placed at 7,800 and then 7,500 levels.

On the options front, maximum Call open interest was at 9,000 and then 12,000 levels while maximum Put OI was at 7,000 and then 7,500 levels. Option OI data lay scattered at various strike prices as many Put writers got trapped in the recent market fall. There was also unwinding pressure, which kept the Street under pressure. Marginal Call writing was seen at strike price 9,000 and 8,800 while there was Put writing at 7,000 followed by 8,000 levels. Options data indicated a wider trading range between 8,000 and 8,700 levels.

India VIX moved down 7.94 per cent to 76.96 level. It made a high of 84.59 during the day and is now placed near the 2009 high of 87.53 and 2008 high of 92.53. A higher VIX indicates bear grip and volatile swings could continue in the market. Nifty’s 500-600 points intraday swing could be new normal in such a scenario until volatility cools down from its historical 11-year high level.

Bank Nifty opened with a downside gap, but started moving higher from initial trades. It continued to move higher, as the session progressed and rallied by more than 2,000 points from the opening low. After an underperformance in last three sessions, the banking index outperformed the benchmark index and rallied over 8%, logging biggest daily gain in six months. If formed a Bullish Engulfing pattern on the daily chart, which is a sign of relief for the market. Going forward, the 19,300 and 20,000 levels would be immediate hurdles for Bank Nifty, while supports will come in at 17,000 and 16,600 levels. Traders shouldn’t get carried away by the up-move and keep their positions light as the overall trend is down and this is just a pullback move of the entire downtrend.

Nifty futures closed positive at 8,354 with a gain of 6.43%. There was long build-up in stocks like ICICI Bank, Kotak Bank, Reliance, Muthoot Finance and ICICI Pru Life while shorts buildup was seen in NCC, CESC, PNB, Lupin and Havells.

(Chandan Taparia is Technical & Derivative Analyst at MOFSL. Investors are advised to consult financial advisers before taking an investment calls based on these observations)