Technical View: Nifty forms #39;Spinning Top#39; pattern, consolidation likely to continue

January 07
17:29 2019

The Nifty50 lost nearly half of its gains in late trade and closed the session higher on Monday, but failed to hold on to 10,800 levels. The rally was driven by strong Asian & US cues while IT sector was the leading gainer (up over 1 percent) ahead of Infosys & TCS’ Q3 earnings later in the week.

The index formed small bearish candle on the daily charts, which resembles a ‘Spinning Top’ kind of pattern.

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.

The Nifty50 after opening sharply higher at 10,804.85 rallied further and hit an intraday high of 10,835.95 in morning, but gradually erased some gains in afternoon and hit day’s low of 10,750.15 in late trade. The index maintained positive trend throughout the session and closed 44.40 points higher at 10,771.80.

The index is likely to consolidate in coming sessions as long as it holds 10,741 levels, experts said, adding the strong uptrend is possible only in case the Nifty crosses 10,985.

“As a follow up to last Friday’s Hammer formation Nifty50 opened with a strong gap up aided by global cues but it failed to capitalise on such a strong opening and given up most of the intraday gains which resulted in a Spinning Top kind of indecisive formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

Hence, for time being as long as Nifty50 sustains above 10,741 levels then sideways consolidate with a positive bias can be expected, he said.

He further said based on last couple of days price action with lower tops and higher lows it suspects the formation of a contracting triangle in Nifty50 but there is no clarity on chart structure about the point of origination of such a triangle and hence it has left the room open for a breakout in either of the direction.

“Such a breakout can be expected in next couple of sessions and on such a breakout Nifty can witness swift move in the direction of the breakout,” he added.

Based on this understanding he advises traders to avoid trading in Nifty50 and to shift their focus on stock specific opportunities.

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

Call writing was seen at 11,200 followed by 11,000 strike while Put writing was seen at 10,700 followed by 10,800 strike. Option band signifies a broader trading range in between 10,500 to 10,900 zones.

“Nifty index negated its formation of lower highs – lower lows of last three trading sessions and closed near to its 50 DEMA. Index has got stuck in a wider trading range in which dips are being bought but follow up buying is missing at higher levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services told Moneycontrol.

He said the index has been forming higher swings lows but at the same time finding multiple hurdle at 10,925-10,985 zones. “Now it has to hold above 10,750-10,777 zones to witness an upmove towards 10,850 then 10,929 while on the downside support exists at 10,650 then 10,600 levels.”

Bank Nifty made a fresh four-month high of 27,477 but witnessed decline from higher levels towards 27,300 zones. The index closed at 27,300.15, up 105.15 points from previous settlement.

Chandan said the index has been witnessing buying interest near to 27,000 zones but finding tough to get a decisive move beyond 27,400 zones.

Now it has to hold above 27,150-27,200 zones to witness an up move towards 27,500 zones while on the downside support exists at 27,000-26,950 zones, it added.

India VIX marginally moved up by 0.88 percent at 16.30 levels.

VIX needs to hold below 16 zones to again get a bounce back move in the market else roller coaster ride could continue, Chandan said.

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