Technical View: Nifty forms #39;Shooting Star#39; pattern ahead of FO expiry; 10,695 crucial for bulls

November 28
18:29 2018

The market maintained positive momentum for third straight session amid firm Asian cues and buying in technology stocks on Wednesday. The Nifty50 closed higher, but failed to hold on to its 200-DMA due to profit booking at higher levels, as traders turned cautious ahead of expiry of November futures & options contracts on Thursday.

The index formed a ‘Shooting Star’ kind of pattern on the daily charts. The pattern is formed when the index comes under selling pressure as traders start booking profits at higher levels.

This pattern is usually formed in an uptrend and is treated as a reversal pattern, but it would require confirmation before we can conclude that the trend will get reversed in near future.

The profit booking at higher levels and selling & muted trade in major sectors indicated that the market internal picture remained very weak, experts said, adding one can avoid creating fresh longs.

The Nifty50 opened and closed above 10,700 levels. The index hit an intraday high of 10,757.80 and low of 10,699.85, before closing 43.30 points higher at 10,728.90.

“Despite a gap up opening bulls appear to have lacked conviction as Nifty50 slightly pulled down towards lower end of intraday trading range after testing 200-day moving average (10,741) which depicted a Shooting Star kind of candle formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

Besides, Wednesday’s positive close exclusively on the back of IT (+2.89 percent) and Media (+2.15 percent) sector, is clearly misleading as market internal picture remained very weak with almost all other sector indices going down with the exception of Nifty Financial services index which managed to keep its head above water with a marginal gain of 0.43 percent, he said.

Hence, in next session if Nifty50 closes below 10,695 levels then there is a bright chance of market triggering a sell-off, according to him.

Contrary to this strength shall resume on a close above 10,775 levels, he said. Hence, he advised traders to stay away from creating fresh longs until a sustainable breakout is registered above 10,774 levels.

On option front, maximum Put open interest (OI) was at 10,500 followed by 10,600 strikes while maximum Call OI was seen at 10,800 followed by 11,000 strike.

Meaningful Put writing was seen at 10,700 followed by 10,650 strike whereas Call writing was seen at 10,800 followed by 10,850 strike. Option band signifies a trading range in between 10,650 to 10,800 zones.

India VIX fell by 1.66 percent to 18.01 levels. VIX has to cool down further below 17-16 zones to get the smooth ride else multiple barrier could restrict its upside movement, experts said.

“The Nifty index closed positive but formed a Shooting Star candle on daily scale which indicates that follow up is missing at higher levels to surpass recent swing high of 10,774 zones,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.

He said the index has been moving in between 10,489 to 10,774 zones from last ten trading sessions and requires a decisive range breakout above 10,774 zone to commence the next move else it may again stuck in broader trading range.

Now it has to hold above 10,650 zones to witness an upmove towards 10,774 then only higher levels while on the downside multiple support exists at 10,580-10,550 zones, he added.

Bank Nifty opened positive but failed to hold its gains and closed flattish with a small bodied candle on daily scale. It has made a fresh eleven weeks high but momentum and follow up is missing at higher zones. It closed 14.85 points higher at 26,457.95.

“Now the index has to continue to hold above 26,250 zones to again spike towards 26,650-26,750 zones while major support is seen at 26,000 zones,” Chandan Taparia said.

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