Technical View: Nifty forms Spinning Top pattern; bigger upside seen only after Nifty crosses 11,500

August 01
18:29 2018

The Nifty50 after flat opening remained rangebound for major part of the session and finally closed mildly lower on Wednesday after the RBI while keeping neutral policy stance hiked repo rate by 25 basis points to 6.5 percent.

The fall in the market is on account of mild profit booking after rising 400-point for previous four consecutive sessions. The index formed ‘Spinning Top’ kind of pattern on the daily candlestick charts.

Spinning Top is often regarded as a neutral pattern which suggests indecisiveness on the part of both bulls as well as bears. It can be formed in an uptrend as well as in a downtrend.

Overall it was a volatile session for the market. The Nifty50 after flat opening at 11,359.80 traded higher and hit fresh intraday record high of 11,390.55, but the rally gradually fizzled out in late morning deals amid rangebound trade and hit an intraday low of 11,313.55 after the RBI monetary policy announcement. The index closed 10.30 points lower at 11,346.20.

“Market appears to have taken a neutral stance to the rate hike as Nifty50 registered an indecisive formation called Spinning Top,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said muted response of bears to the RBI event is suggesting that there may not be a bigger correction going forward but market may consolidate to adjust the readings on technical oscillators which are in extremely overbought zones as market has relentlessly rallied for the last 9 sessions.

Once this corrective and consolidation phase gets over Nifty50 can be expected to resume its upmove with initial targets placed around 11450 levels but beyond that a bigger swing can be expected only on a fresh breakout above 11,500 kind of levels, he added.

According to him, on the downsides initial support can be expected around 11,267 levels breach of which may drag down the indices further towards the bullish gap zone of 11,210–11,185 levels registered on July 27. “As trends across the time frames are strong any such fall shall be considered only as an opportunity to create fresh longs.”

India VIX moved up by 0.16 percent at 12.50. Overall lower volatility suggests that bulls are holding the grip on the market, experts said.

On option front, maximum Put open interest (OI) was seen at 11,000 followed by 11,200 strike while maximum Call OI was at 11,500 followed by 11,400 strike. Put writing was seen at 11,000 and 11,200 strike whereas Call writing was seen at 11,400 followed by 11,500 strike.

“Nifty index continued its formation of higher high – higher lows for last nine trading session and made a new life time high of 11,390 levels. However it witnessed profit booking from higher levels and finally closed negative after the consecutive gain of last four session. It formed a Spinning Top candle on Daily scale which indicates that now pace of buying is getting lesser in the market,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.

He said now the index has to continue to hold above 11,300 zones to extend its move towards 11,400-11,435 zones while on the downside major support is seen at 11,250 then 11,171 zones.

Bank Nifty failed to surpass previous day’s high and corrected towards 27,477 levels. It has negated the formation of higher lows of last six sessions after the announcement of RBI Policy and has been underperforming the Nifty index from last couple of sessions.

Now it has to cross and hold above 27,650 zones to extend its move towards 27,800 then 28,000 zones while a hold below 27,500 could drag it towards 27,400 and then 27,250-27,165 zones, Taparia said.

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