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Nifty Technicals - 06 September 2020

The previous week saw some major technical development on NIFTY. Monday, 31st August's price action saw a huge candle, where the market opened with a gap up. The first few minutes took out any remaining bears due to the prospect of index opening up targets for 12000.

But as expected in the earlier article, this zone of 11700-11800 turned as a resistance after the one way rally that started from 11200. What started as a profit booking amid lack of fresh buying, got extended into persistent selling, which lead to a 450 point cut from the day's high. This caused a huge bearish candle. The gap up acted as a bull trap. Bulls who bought the intra-day dip fell under a trap and would turn into sellers to recover losses when ever the index pulls back closer to the 11600. Thereby, leading to a short term resistance set around this level. The index tried to recover immediately for the next couple of days, but due to loss covering by the bulls, the index could not sustain and sold off on Friday, 4th September to close the week near the lows seen on Monday, thereby forming a huge Bearish Engulfing candle on the weekly time-frame. The range was larger than what was seen over the past 8 weekly candles. You could also notice the similarity of the engulfing candle with the one seen back in February. This price action carries a significance because the day's candle eclipsed the price action of the previous 5 days, similar to February. This indicates the sustained selling pressure that emerged on Monday.

Nifty Daily 06 August 2020
Nifty Daily 06 August 2020
Nifty Daily 06 August 2020 - Pattern Significance
Nifty Daily 06 August 2020 - Pattern Significance

The immediate outlook is bearish. The index could try to look for a support near 11100-11200 zones, in case selling persists in the coming week. At present, probability of the selling to continue in the coming week looks higher due to the fact that the market structure got altered last week. The index finally closed below the rising support trend-line that was seen forming since March 2020. The trend-line carries some significance because the trend was respected for 5 months since the major market crash. In addition, the index closed below the 20 EMA which was acting as support on the daily scale. We all know that the rally was a trading rally induced by technicals more than fundamentals. Hence the break of structure would tilt the technical traders in favour of bearishness as and when the lagging technical indicators turn bearish. Hence it is critical that the index finds support above 11100 to rally above 11600 immediately, to sustain bullishness by keeping higher lows intact. The bull run since March would be negated if the index breaks 11000, as that would confirm a lower low and a lower high of 11550 in the short term.

Nifty Weekly 06 August 2020
Nifty Weekly 06 August 2020

NIFTY Futures saw high volume during the sell off on Monday. But the pull back saw reduced volumes, thereby confirming that fresh buy on dips were missing. The Stochastic Momentum Index is indicating a loss of momentum for the bulls on the weekly scale. On the Options OI front for September expiry, highest Call OI is seen at 12000, which acts as resistance and highest Put OI is seen at 11000, which acts a support.

DII have been net sellers in tune of 10K crore in cash segment for both July and August. Their selling spree still continues. They have clearly been profit booking. Any sizeable correction would lead to DII becoming active buyers again. Until then, DII would either keep booking profits or stay dormant. On the other hand, FII were net buyers in tune of 15K crore for August, which gave a helping hand to the rally. As long as FII continues their buying, the bulls should be in a comfortable position, but watch out for any change in the FII trend as they could easily overpower the DII.


So, expect some more residual selling to continue before gaining support with fresh buying near 11100-11200. This zone is crucial for the bulls to continue the rally. Similarly, if the index crawls back to 11500, more selling pressure could emerge. Unless the index decisively breaks out of 11550-11600 with intra-day momentum, the rally could be suspect. Once this zone is broken, then newer targets would open up towards 12100-12200. Hence 11500 is crucial for the bears for any sort of trend reversal in favour bears. Watch out for these 2 levels in the tussle between Bulls and Bears.

 

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