TECHNICALLY SPEAKING

The Nifty index registered record high levels of 9,119 in the month of March 2015. Thereafter, it has been a sea of red for the market as the index witnessed a significant decline of over 10 per cent after touching a record high level in a short span of about two months. To make it worse,  the Nifty index for the first time in the past one year has managed to close below its 200-day EMA, a level most traders and investors follow. The increase in crude oil prices, rise in sovereign bond yields of developed economies, weakening of rupee, waning industrial activity, and concern over retrospective taxation have been the key reasons for the recent market correction. 

However, the relentless selling pressure finally seems to have come to a halt as the Nifty index staged a solid comeback on Friday, May 8, 2015 and closed a shade below the important psychological mark of 8,200. The market rallied on the back of a positive development by the government which announced the setting up of a committee to suggest ways to resolve the minimum alternative tax (MAT) dispute with foreign investors as well as some other tax issues. The investors’ sentiments also got a boost as the rupee recovered against the dollar after a recent steep fall and decline in crude prices. So what should traders and investors expect going forward on Nifty and Bank Nifty?

Nifty

• As per the daily time frame chart, the Nifty index formed a bearish engulfing candlestick pattern around the record high levels of 9,119 as on March 4, 2015.
• Thereafter, the index has formed a lower top, lower bottom pattern and registered a swing low of 8,269.
  After forming a swing low around the level of 8,269 the index entered into a pullback mode and rallied up to the level of 8,845. The index failed to cross this hurdle and formed a bearish candlestick pattern and entered into a corrective mode.
• During this corrective mode the Nifty index breached its important short-medium-term moving averages like 15-day EMA (8,299), 21-day EMA (8,355), 50-Day EMA (8,484), 100-day EMA (8,464).
  The index also formed a bearish pattern i.e. head and shoulder pattern and the neckline support for this pattern was around 8,330.
• On April 24, 2015 the index breached its neckline support and after couple of trading sessions it breached its 200-day EMA (8,188) as well.
• After a significant correction, the index has formed a potential bullish morning star doji candlestick pattern over the past three trading sessions. This candlestick pattern is a reversal candlestick pattern which is bullish in nature and appears at the end of the downtrend.
• The daily momentum oscillator like 14-period RSI is trading around 30-odd levels and we observe a positive divergence formation in the daily momentum oscillator.  
  Formation of bullish reversal candlestick pattern along with positive divergence on the daily momentum oscillator suggests relief rally likely to extend up to the levels of 8,330, which is 38.2 per cent retracement level and neckline of the head and shoulder formation.
• If the index sustains and closes above the level of 8,330, the head and shoulder pattern will get negated and a fresh rally could be seen up to the levels of 8,510.
• On the downside if the index breaches its important support level of 7,961, expect the index to touch levels of 7,750 and 7,600 which are 138.2 per cent and 161.8 per cent retracement levels.

Bank Nifty

• As per the daily time frame, the Bank Nifty index formed a bearish gravestone doji candlestick pattern around the record high level of 20,908 as on January 28, 2015.
• Thereafter, the Bank Nifty index entered into a corrective mode and formed a lower top, lower bottom pattern. 
  As on February 10, 2015 the Bank Nifty index formed a swing low of 18,227 with the formation of a bullish engulfing candlestick pattern.
• The index rallied up to the level of 20,542 and formed a double top pattern around the levels of 20,542-20,600 as on March 4, 2015. The double top reversal is a bearish reversal pattern.
• Post the double top the Bank Nifty index formed a lower top, lower bottom pattern.
• Currently the Bank Nifty index has tested its upward rising trend line support formed after joining the low of 14,339 formed on July 14, 2014.
• The Bank Nifty index is likely to continue its upward momentum and may reach test levels of 18,250-18,400.
  If the Bank Nifty index breaches its supply zone of 18,250-18,400, it will witness a fresh breakout and in this case it’s likely to touch levels of 19,000-19,300.
• On the downside, 17,250 is important support for the Bank Nifty index. If it breaches this support level expect it to touch levels of 16,800 and next 15,400.