Technical View - Oct 12, 2020 - Mr. Nagaraj Shetti, Technical Research Analyst, HDFC Securities
Nifty shifted into a consolidation with narrow range movement on Monday and closed the day higher by 16 points. A small negative candle was formed with upper and lower shadow. Technically, this pattern could be considered as a high wave type pattern which reflect high volatility in the market at the swing highs.
Some time, such formation of high wave patterns could signal reversal of current trend after the confirmation. Though, Nifty stretched its uptrend for the eighth consecutive session on Monday, still there is no confirmation of any reversal pattern at the highs. Hence, we expect minor consolidations for the 1-2 sessions and that could eventually result in an uptrend continuation pattern. In the last 11 sessions, Nifty has not showed any important reversal signals.
The overall market breadth has been a area of concern for the benchmark Nifty over the last few sessions. The broad market indices like small cap and large cap have continued to show underperformance and continued with minor weakness on Monday, which has resulted in a negative advance-decline ratio.
The significant trend line as been broken on the upside on the weekly chart in last week and the previous key reversal pattern like bearish engulfing on the daily and weekly timeframe has been negated and Nifty managed to close above 11795 levels (high of bearish engulfing) in the two sessions. The doji type confusing pattern of 8th Oct has also been nullified recently and Nifty close above it (11905). Hence, all these positive evidences could signal more upside for the market ahead.
Conclusion: The underlying short term trend of Nifty continues to be positive. Present consolidation pattern could end soon and Nifty could resume its uptrend in the coming sessions. The upside levels to be watched around 12250 for the next 3-4 sessions. Immediate support is placed at 11850.