Tech view: Bullish Engulfing Pattern shows Nifty may have formed bottom

Domestic equities shrugged of trade war worries and staged a relief rally on Tuesday, as short-covering triggered a technical bounceback, helping key indices to shut shop with decent gains.

Before closing around 85 points higher at 10,948, Nifty shuttled between 11,018 and 10,813 levels.
The 50-share index opened the day lower at 10,815 following weak global markets due to an escalation in the US-China trade war. However, heavy buying in select stocks supported the index to close above its previous day’s high for the first time in 13 sessions.


It seems that market has managed to form a temporary bottom with Tuesday’s low point of 10,815 acting as support, says Milan Vaishnav, Consultant Technical Analyst, Gemstone Equity Research and Advisory.

In the process, the index formed a Bullish Engulfing Pattern. This is the second candle after a long lower shadow that emerged on Monday, which pointed towards the formation of a potential bottom, Vaishnav said.

The technical pullback witnessed on Tuesday may be extended to Wednesday’s trade.

“Investors should avoid shorts, as the market is still in the oversold region. Any fresh purchase should be done on a highly selective basis and profit should be protected at higher levels,” said Vaishnav.

Mazhar Mohammad, Chief Strategist-Technical Research and Trading Advisory, Chartviewindia, said lower timeframe charts generated a ‘buy’ signal after two sessions of brief recovery, but Nifty is yet to clear its five-day moving average. Once that short-term hurdle is eliminated, a bull case for a near-term pullback shall get strengthened.

He further said as long as Nifty sustains above 10,782, one can retain a bullish bias and look to buy on dips.

On the options front, maximum Put open interest (OI) stood at 11,000 followed by 10,500 levels, while maximum call OI was at 11,000 followed by 11,500 levels.

Chandan Taparia, Associate Vice President and Derivatives Analyst at Motilal Oswal Financial Services, said the Option data suggested Nifty’s trading range between 10,700 and 11,200 levels.