Technical View: Nifty forms #39;Long Legged Doji#39; pattern, gains for 4th straight day; tread with caution

January 09
17:29 2019

The sharp recovery in last hour of trade helped the Nifty50 close higher for fourth consecutive session on Wednesday, supported by global cues. The three-day long meeting for trade talks between US and China concluded today.

The index after the volatility closed above 10,850 levels and formed ‘Long Legged Doji’ kind of pattern on the daily charts.

A typical long-legged Doji pattern is formed when the opening price is almost equal to the closing price but there was a lot of intraday movement on either side.

It also resembles a ‘Dragon Fly Doji’ kind of pattern but this pattern is more relevant when the market is in a downtrend.

The Nifty50 had a volatile day as the index opened sharply higher at 10,862.40, but in second half of the session it drifted lower to hit day’s low of 10,749.40. It immediately managed to show sharp recovery in last hour of trade to hit an intraday high of 10,870.40. The index closed 53 points higher at 10,855.20.

“Nifty50 registered a Long Legged Doji kind of formation as a sudden fall of post lunch session, which dragged the indices to intraday low of 10,749, was bought into by the market participants there by creating a long lower shadow only to push the indices to close around day’s high,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said this kind of price action can be a bullish sign as dip was quickly bought into but as Nifty is still trading inside a contracting structure traders are advised to remain cautious and wait for a proper breakout above 10,923 levels on closing basis.

Such a breakout should ideally pave the way for a sustainable rally with bigger targets beyond 11,000 kinds of levels, he added.

Mazhar Mohammad advises traders to remain focussed on stock specific opportunities with a market stop placed below 10,733 levels on closing basis.

India VIX fell by 2.74 percent at 15.27 levels. VIX has to continue to hold below 16 zones to again get a bounce back move in the market.

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 11,200 strike.

Put writing was seen at 10,900 followed by 10,800 strike whereas Call writing was seen at 11,100 followed by 10,900 strike. Option band signifies a broader trading range in between 10,700 to 11,000 zones.

“Nifty index formed a High Wave candle with long lower shadow as a roller coaster ride was seen in last two hour of the session. Now it has to continue to hold above 10,750-10,777 zones to witness an upmove towards 10,925 then crucial hurdle at 10,985 levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

The index has been taking hurdle at its immediate supply trend line by connecting swing high of 10,985, 10,923 and 10,880 zones and requires a decisive range breakout above 10,985 marks to commence the next leg of rally, he added.

Bank Nifty witnessed buying interest in the morning dips and headed towards its recent fresh four-month high of 27,750 zones. The index closed 210.90 points higher at 27,720.40 and formed a bullish candle on daily scale and has been outperforming the Nifty index from last couple of weeks.

“Now it has to hold above 27,350-27,400 zones to extend its gains towards 28,000 zones while on the downside support exists at 27,150-27,000 zones,” Chandan Taparia said.

Nifty future closed positive with the gains of 0.26 percent at 10,873 levels. Built up of long positions were seen in NIIT Tech, Bata India, KSCL, Axis Bank while shorts were seen in L&T Finance, NMDC, CEAT, SAIL and GAIL.

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