Technical View - Oct 16, 2020 - Mr. Nagaraj Shetti, Technical Research Analyst, HDFC Securities
After showing a sharp weakness on Thursday, Nifty managed bounce back on Friday and closed the day with decent gains of 82 points. A small positive candle was formed with minor lower shadow, technically this pattern indicate a chances of upside bounce in the market.
The overall market breadth has continued with sluggish movement but, broad market indices like mid and small cap segments have closed in green with the gains of 1.39% and 1.13% respectively. this could be a minor hopes for longs to comeback in the market.
The negative implication after the formation of bearish engulfing pattern of Thursday remains intact, as long as the high of that pattern is protected at 12025. Friday's upside bounce could provide opportunity for sell on rise in the next week.
Similar upside bounces for three sessions have occurred in past, after the formation of bearish engulfing pattern (in early Sept 20) and the sell on rise has triggered near the mid part of the long range bear candle at 11585. Hence, the mid part of Thursdays bearish engulfing pattern comes around 11850, which is going to be an immediate resistance for the market ahead.
A reasonable negative candle was formed in this week with minor lower shadow (as per weekly timeframe chart), after the formation of long bull candles in the previous two weeks. This pattern could signal strength of recent upside bounce and any further weakness down to 11600-11550 could offer strong supports for the market.
Conclusion: The upside bounce of Friday could raise some hopes for bulls to make a comeback and we expect this upmove to continue till 11850-11900 in the next week, before encountering resistance at the highs. Immediate support is placed at 11650.