By Anand James
The vertical rise last Thursday appeared to invalidate the evening star pattern visible in the weekly chart, which at a point was clearly pointing towards a dip towards 17000-16650. That the invalidation theory did not inspire bulls to jump in was entirely due to Tuesday’s rise being too large to be passed off as a normal bull candle, which ended up recording the largest single day rise since May. Historically such gigantic one-day rises have almost often been followed by a drop, though uptrend prevailed in a while. Last week, the Nifty struggled to find upside momentum in the next two successive days after the steep rise, leaving directional traders on a limbo. That neither the bull nor the bear have been wrest advantage is clear, if one were to look at India VIX played out in the last 5 days. These days, though Nifty never closed above 20, the average range of VIX has been about 20%, which is unusual. Thus, while VIX is clearly not at a level lofty enough to precipitate a collapse, directional trades have become difficult, given how indecisive, VIX has been.
Bull Case Setup
Of the three multi month decline and rise phases that has unfolded since Nifty hit record peak in October 2021, the latest one that has stretched from May through August, has been steeper, larger and lasted longer. This suggests that a new wave is in play. Those making a play on Nifty for Diwali may wait for a close above 17700, to confirm invalidation of the bearish evening star pattern that has been in play in weekly charts. Such a scenario will encourage us to look for 18600 in Nifty.
Also read: Nifty resistance at 18000, use any bounce below to go short; trade AAVAS, Persistent System stocks
Bear Case Setup
As we wait for a close above 17700, leaning on to the bull side, the downside bias will dominate, Nifty should struggle to push beyond 17580 on Monday. Such a scenario would bring the 17000-16650 region again in play, but expect bulls to regroup in the 17335/245 region.
(Anand James, Chief Market Strategist at Geojit Financial Services, Views expressed are the author’s own.)