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Nifty Technicals - 03 October 2020

Nifty has been making lower highs and lower lows in the recent weeks. The long bearish engulfing formed on 31st August indicated bearishness and the index corrected as expected in the earlier article. The break of the rising support trend-line that formed since March 2020, contributed to the strength of the corrective structure.

Nifty-03-October-2020-Daily-Chart
Nifty-03-October-2020-Daily-Chart

4 weeks on, the market is still in the corrective structure and has not yet broken the resistive trend-line which formed when the market made subsequent lower tops. The recent pullback from 10790 is again facing resistance near 11400-11450 where the trend-line lies now. The 61.8% Fibonacci Retracement of the market downside from 11800 to 10800 also coincides with the 11400 pattern resistance zone. This adds weight to the current downtrend. If the market resumes the downtrend from here on, the ongoing structure of lower high will be intact. For any reversal of this trend, the market needs to break 11600 on the upside decisively with intra-day price action. Any technical correction after the breakout should also not make a lower low by breaching 10800 and should ideally hold above 11100 for further upside strength. In such a bullish scenario, the market can retest 11800. On the contrary, in a bearish scenario, a break of 10800 would lead to further correction till 10550-10600 which acted as a support during the month of July.

Nifty-03-October-2020-Hourly-Chart
Nifty-03-October-2020-Hourly-Chart

Alternatively, the index could also get stuck in a range after seeing increased volatility for the month of September. US elections, expectation of stimulus package, RBI moratorium judgement, the military standoff at Ladakh, Spread of COVID and uncertainty of lock-down due to it, are all events which can influence market direction but ones that don't have clarity at the moment. A directional bet on the index could be put on hold by institutions until clarity emerges which adds strength to the possibility of a ranged move in the markets with a band of 10900-11600 for the coming weeks.


September saw a reversal of FII and DII activity. DII after being net sellers since July, supported the markets by absorbing the selling of FII. The buying led to DII closing the month as marginal net buyers while the FII selling was in tune of 11k crore which was instrumental in the market correction. FIIs are beginning to determine the market direction after being subdued since April and need to be watched closely. For the near term, there is significant PUT OI at 11000 strike and CALL OI at 11500 strike, which indicates the range for the coming weeks.


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