Formation of inside bar & NR4 indicate volatility contraction; 16,200 is important support!

Nifty snapped its four-day winning streak on Friday and ended the session down by 0.35 per cent at 16,238.20 levels. Despite ending the final trading session of the week on a tepid note, the index managed to register gains of 3.01 per cent on a weekly basis.   

Nifty formed a bearish candle on the daily chart as it closed below the opening tick. Besides, the formation of a bearish candle after a Doji candle, which was seen in the prior session, is an ominous sign. However, if one looks at the larger picture i.e., the weekly timeframe, it has formed a sizeable bullish candle.   

Interestingly, on the daily chart, there is a formation of an inside bar and an NR4 pattern. Inside bar because the day’s range was within the high & low of the prior trading session and NR4 as the day’s range was narrowest in the last four trading sessions. Overall, we have a formation of Doji+IB+NR4, which indicates contraction of volatility, and this has been formed after four days of a strong bull move.   

Considering this formation, the high & low of Friday’s bar is going to be very crucial. The level of 16,336.75 on the upside and 16,223.30 on the downside should be closely watched as a decisive move could be seen in breach of the above levels mentioned.    

As long as the index manages to sustain above the 16,200 level, be with a bullish bias for a target of 16,400-16,440.