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NIFTY Technicals - 02 August 2020

Updated: Sep 6, 2020

The index continues to move within a well defined channel with reducing weekly range and volume. Even though Nifty appeared to breach the rising wedge pattern a few weeks back, the strong bullish momentum pulled back the index to retest the upward resistance trend-line (red) yet again. As Nifty climbed the wall of worries, multiple support zones have been established on the downside. In spite of minor corrections seen on the index over the past 3 days, the structure remains in favour of the bulls, unless the immediate support line (green - daily) forming since mid of June is breached.

Nifty 02 August 2020 Daily
Nifty 02 August 2020 Daily

11000-11050 appears to be the psychological support which also aligns with the immediate support line for the coming week. Hence it is expected of the bulls to attempt a pull back as long as the trend-line is held. If this support is broken, a sharp profit booking led correction is expected to pull the index down to 10750 zones. If a stronger bearish momentum emerges near 10750, the index could test the earlier swing low (blue) around the 10550-10600 zone. Any support taken near these multiple support levels would pull the index back to test the rising resistance trend-line leading to higher targets of 11500-11600. But, unless this rising resistance is broken, a runaway bullish move would not materialise.

Nifty 02 Aug 2020 Weekly
Nifty 02 Aug 2020 Weekly

On a weekly basis, the index tested and reversed from the 78.6% Fibonacci retracement (11250), formed from Feb high to March low. A breakout from 11250 failed to materialise and formed a near term bull trap for traders who would have played the breakout. The continued reduction in momentum seen on Stochastics Momentum Index over the past 3 weeks hinted towards an unsustainable breakout. Nifty made a dark cloud cover candlestick pattern while still maintaining the rising wedge. A strong closure with high volume below the medium term support line (green - weekly) is required to take any bearish stand. Due to the narrowing range seen week on week and reducing volume as seen on Nifty Futures, it would be advisable not to play the breakout, instead it is prudent to wait and see the end of week structure for confirmations. In either case, the upcoming week could be crucial in determining further direction for the market.

On Nifty Aug Options OI front, maximum Call OI is seen at 11500 which would be near term resistance, while maximum Put OI is seen at 11000, confirming the crucial support zone. Though still very early in the august series, the PCR (Put Call Ratio) of 1.7 indicates overstretched long positions. India VIX, the volatility index is seen at much lower levels compared to march, thereby giving a helping hand to the bulls. FII flows have gradually slowed over the past 3 months, though July saw about 2.5k crore rupees inflow in equity cash segment. Surprisingly, DII have been net sellers in the tune of 10k crore rupees, which indicates institutional distribution at higher levels. Both DII and FII activity needs to be closely watched in the coming weeks.

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