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Nifty Technicals - 16 August 2020

Last week ended with a big bearish candle on NIFTY which was sharp and quick. The selling was supported by some late short covering by traders who did not wish to take positional risk over the weekend. The late support also coincided with the support trend line (green) formed by the rising channel since March 2020. This support line is crucial for the coming week. If NIFTY takes support from here, the index can rally again to 11350. However, this rally would be no trade zone. Fresh longs can be initiated with conviction only when NIFTY breaks out of 11350, which could open up much higher targets of 11800 zones based on the upper resistance trend line (red) of the rising channel. NIFTY candle formed a Doji pattern on the weekly time frame, with the bottom forming at the rising support line, which makes the coming week's closure important.

Nifty 16 August 2020 Daily Chart
Nifty 16 August 2020 Daily Chart

On the contrary, if NIFTY registers a close below the rising support line (green), it could open up a new path for NIFTY with swift correction till the previous swing low of 10850-10900 (yellow). However, this support could be broken fairly easily due to profit booking caused due to the break down from the rising channel. If 10850 breaks, the next support is seen near 10550-10600 (blue), where profit booking and fresh buying can lend a support. The support with either at 10900 or 10600, should not be seen as a construed bullish, until NIFTY crosses 11350.

The rising channel gives strength to the bulls, while the losing momentum as seen in Stochastic Momentum Index due to the divergence gives strength to the bears. Hence the price action in the next couple of days could tip the balance towards one of the directions. The correction seen on Friday, 14th Aug, had a higher volume on NIFTY Aug Futures than the past few weeks. The heavy selling from the top, could keep the index under pressure, unless a strong buying emerges on Monday. The immediate hurdle for the index on Monday is seen at 11250, while the support is already found near 11150.

On the Options OI front, the indication is skewed towards bullishness due to a PCR of 1.5 for NIFTY August expiry. Highest PUT OI is seen at 11000, while CALL OI is seen at 11500. The strange institutional activity of DII being net sellers the entire month of August, while FII being net buyers continues. DII selling could be seen as profit booking of their heaving buying seen during the previous 5 months. Traders should keep a close watch to see if the selling intensifies or subsides. In all cases, the coming week could be interesting to see if NIFTY commences a new path or continues the trend seen since March, 2020.

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