Technical View: Nifty forms #39;Doji#39; pattern; pull back rally could be possible

October 25
20:28 2018

The Nifty50 after sharp gap down opening continued to trade lower throughout the session on Thursday, the last day of October series. Global cues and correction in index heavyweights Reliance Industries and HDFC twins weighed down the market.

The index hit fresh seven-month low during the day but managed to show some recovery in later part of the session to close above 10,100 levels. It made small bodied bearish candle on the daily charts, which resembles a ‘Doji’ kind of pattern.

A ‘Doji’ is formed when the index opens and then closes approximately around the same level but remains volatile throughout the day which is indicated by its long shadow on either side. It appears like a cross or a plus sign.

Experts feel the market behaviour indicated that it may be bottoming out for the time being. Hence, the pull back rally could be possible in coming sessions, which could be short lived, they said.

The Nifty50 after opening sharply lower at 10,135.05 extended losses to hit an intraday low of 10,079.30. The index managed to recover around 40 points from day’s low, before closing 99.90 points lower at 10,124.90.

“Bulls once again disappointed as they appears to have succumbed to the volatile nature of global markets as they opened with a gap down before signing off the session with a Doji kind of indecisive formation. But somehow, despite multiple attempts, bears failed to breach 10,100 levels on closing basis as intraday gap down openings are not witnessing follow through selling,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said this kind of buying at lower levels may be pointing towards the fact that markets are stretched on the down side and in need of a relief rally which in his opinion, based on technical patterns, shall unfold sooner than later.

He further said interestingly some of the momentum oscillators started displaying positive divergence and twin momentum oscillators are in buy mode which usually acts as a leading indicator before market turns. Hence, he will advise traders to bet on a pull back rally for a initial target of 10,400 levels with a stop below 10,100 on closing basis.

India VIX gained 2.27 percent at 19.31 levels. Volatility is not cooling down further and that is the concern for the market. It has to go down below 17-16 zones to rescue the bulls after the sharp cut of last two months, experts said.

Option data is scattered at all the immediate prices as it is the beginning of new series. On option front, maximum Put open interest (OI) was seen at 10,000 followed by 10,200 strike while Call OI congestion was seen at 11,000 followed by 10,500 strikes. Call writing was seen at 10,300 followed by 10,200 strike while Put writing was seen at 10,000 followed by 10,100 strike.

“Nifty index opened negative and remained under pressure for most part of the session to hit a fresh seven-month low of 10,080. However it formed a small bodied candle as it recovered from its lows but follow up was missing at higher levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.

He said the index has been trading at deep over sold territory with divergence of Mechanical indicators but bounce is being sold and trend is still intact to negative. “Now till it remains below 10,200 zones, overall weakness could continue towards next major support of psychological 10,000 and 52-week low at 9,952 mark.”

On the upside index needs to cross and hold above 10,250 zones to get any sign of temporary relief or bounce back in the market, he feels.

Bank Nifty formed a Doji candle as it remained in a range of 200 points after its negative opening. It has been respecting to its major support of 24,650 while on the upside multiple hurdles are restricting its momentum to surpass 25,350-25,500 zones. The index closed 246.75 points lower at 24,817.45.

Now Bank Nifty has to cross and hold above 25,000 zones to witness an up move towards 25,250 then 25,500 zones while on the downside supports are seen at 24,650 and below that fresh decline towards 24,444 and lower levels could be seen, Taparia said.

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