Analyst Somesh View (Closing Comments - 22nd May 2020)

Analyst Somesh View (Closing Comments - 22nd May 2020)

Nifty after defending the psychologically important 9000 mark, closed below 9050 to form a Doji pattern on daily chart and a Hammer formation on the weekly Chart after falling 1.2 percent for the week.

A Doji candle indicates indecisiveness among the bulls and the bears, as the index closed near the opening levels and bounce was being sold in the absence of follow up buying interest.

Hammer is a bullish reversal pattern formed after a decline. A hammer consists of no upper shadow, a small body, and long lower shadow. The long lower shadow of signifies that the stock tested its support, where demand was located and then bounced back.

Nifty opened lower at 9067 but gained momentum to hit an intraday high of 9149. However, after the RBI move in the morning, the index corrected sharply and traded lower for rest of the session to hit the day's low of 8968. It showed some recovery in the late trade to close at 9039, down 67 point.

Nifty registered an indecisive Doji candle before signing off the volatile session ahead of the long weekend, whereas a 
Hammer formation was registered on weekly chart as the Nifty witnessed a decent recovery from the intra week low of 8806 level.

Index is hovering around 20 day EMA. On the upside, 9150 is likely to act as a crucial hurdle for the index.

Hence, in next trading session it looks inevitable for the index to sustain above 8968 level to prevent further damage in the near term, as a breach of the said level can eventually drag it down towards 8800 level.

In case the bulls manage to defend 8968 with a strong close above 9100 then they can make one more attempt to break out from the consolidation range present between 9160 and 8800.On such a breakout, an upswing can be expected to resume, with initial targets placed around 9350.

Global markets were mixed during the week, while the US markets notched good gains; the Asian markets remained subdued. 

Hong Kong market fell 4 percent on tensions with China after reports came in that China is preparing a draft law, which could curb freedom for Hong Kong citizens. Tensions also elevated between the US and China. 

FPIs sold equities worth US$1.4 bn over the past five trading sessions while DIIs sold $906 million worth of equities in the same period. We advise investors to buy stocks with good management quality and strong balance sheets.

Traders to wait for signs of strength before creating long positions. Intraday shorting can be considered below 8968 level for modest targets placed in the 8875 /8850 zone with a stoploss above intraday high.

- Someshwar, Technical analyst, Equidius Research