Breakout! Nifty50 forms a large bull candle; next stop 8,000

NEW DELHI: After a big gap-up opening on Wednesday, the bulls pushed Nifty50 above its crucial resistance level of 7,900, forming a large bull candle on the daily candlestick charts of Nifty50 in the process.

The Nifty50 index surpassed all immediate hurdles at 7,820, 7,880, 7,920 levels and is now trading above its crucial 200-day moving average ( DMA) located near the 7,790 mark. The next logical target for the index is above 8,200, experts said.

History repeated itself on Wednesday when Nifty50 formed a large bull candle on the daily candlestick charts. The last time the index had formed a ' hammer' pattern was on May 6, which was followed by a large bull candle. The index then rallied over 200 points from there on.

The Nifty50 charts, which showed a 'hammer' pattern on Tuesday followed by a large bull candle on Wednesday,
suggest shorts are trapped and the bulls have taken control of the market.



A long bullish candle on the daily charts and crossing of the 200-day exponential moving average is a positive sign for the bulls. A bullish candle is formed when the closing price on any given day is significantly above the opening price, thus forming a large real body.

A long bullish candle shows that the market witnessed sustained buying interest for most part of the trading session, which is a bullish sign.

“The losses seen in the past six days from the high of 7,940 got erased as the market saw robust bounce, forming a large bull candle on the daily Japanese candlestick charts. This faster retracement of the last leg of fall from 7,940 to 7,715 appears to have unleashed a fresh leg of upward trend, which may take the indices toward its logical target at 8,242 level,” Mazhar Mohammad, Chief Strategist - Technical Research & Trading Advisory, Chartviewindia.in, told ETMarkets.com.

“However, considering the highly volatile behaviour of the market in recent weeks in which large bull candles with a gap up opening failed to attract followup buying leading to disappointment, traders should be cautious and position themselves for bigger moves on any sustainable breakout above 7,940 level,” he said.

Analyst advised traders to use any dip on account of profit booking to create fresh long positions with a stop loss below the 7,800 level.

Technically, the market is still trading in the broad range between 7,750 and 8,025 levels and any fresh signal to buy will have to be on the back of a closing above the 8,050 level, experts said.

“The Nifty50 struggled to surpass the 7,940-7,979 zone many times during the entire May series, but now a strong momentum may help it cross the strong wall of resistances by making a move above the psychologically important 8,000 level,” Chandan Taparia, Derivatives Analyst - Equity Research, Anand Rathi Financial Services, told ETMarkets.com.

“The Nifty50 has support near to the 7,878 level and if it holds above the 7,940 level, it may head towards the 7,992 level hit earlier this month. It will then move towards the 8,150 level at the start of the June series,” he said.