Technical View: Nifty forms Dragon Fly Doji pattern, 14,500 crucial for uptrend

Representative image | Source: Pixabay

Representative image | Source: Pixabay

The Nifty50 closed at a record high yet again on January 11, as the momentum remained strong with an improved outlook for December quarter earnings along with positive global cues. IT, FMCG, auto and pharma stocks led the rally.

The Nifty50 opened gap up by more than 100 points at 14,474.05. It witnessed some volatility in the morning but gained strength in the afternoon to hit a fresh intraday record high of 14,498.20. It closed at 14,484.80, up 137.50 points.

The index formed a small bullish candle which resembled the Dragon Fly Doji pattern on the daily chart.

A Dragonfly Doji pattern signals indecision among traders but also points to the bulls managing to bring the index close to the opening level. The index has to clear the immediate hurdle of 14,500, the record high touched on January 11, for the bullish sentiment to continue.

Traders should avoid trading in the index for the day, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at told Moneycontrol.

The volatility increased further to 22.38 levels, up by 8.44 percent from 20.64 on January 8. It needs to cool down below 20 to support a bullish market setup, experts say.

“The bulls appear to have failed in capitalising on a strong gap-up opening as no incremental gains were witnessed during the entire session after the opening tick, which resulted in a Dragon Fly Doji kind of formation. This kind of pattern is usually seen around potential market turning points hinting at a balance of power between the bulls and the bears at the top,” Mohammad said.

Moreover, “the significance of this formation in today’s session stems from the fact that advance-decline ratio since the first hour of the trading decisively started favouring the bears, hinting at profit booking in the broader markets,” he said.

If the index trades below the day’s bullish gap zone of 14,383-14,367 in the next session, then it can see profit-booking, he said. If the Nifty closes below 14,367, then the correction can be higher towards 14,167.

But if the bulls manage to push the index beyond 14,500, then the upswing can expand towards 14,750, Mohammad said.

On the options front, maximum Put open interest was seen at 14,000 followed by 13,000 strike, while maximum Call open interest was at 15,000 followed by 14,000 strike. Minor Call writing was seen at 15,000 then 14,700 strike, while Put writing was seen at 14,000 then 14,400 strike.

The options data indicates that the Nifty could see an immediate trading range of 14,300-14,600.

The Bank Nifty opened gap-up at 32,280.30 but could not sustain at higher zones and remained quite choppy with some selling pressure for the most part of the session. It moved in a range and closed with losses of 85.30 points at 31,998.90, forming a bearish candle on the daily scale.

“The index has to continue to hold above 31,750 levels to witness an up move towards 32,500 and 32,613, while on the downside, support is seen at 31,500 and 31,200 levels,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

Positive setup was seen in Tata Motors, HCL Technologies, Infosys, Wipro, HDFC, Lupin, Tata Consumer, Ashok Leyland, Maruti Suzuki, Bajaj Auto, Tech Mahindra, MRF, Cipla, Colgate Palmolive, McDowell and Biocon. Weakness was seen in Shriram Transport Finance, Indiabulls Housing Finance, RBL Bank, M&M Financial, Bajaj Finance, Reliance Industries, PNB, Kotak Mahindra Bank, Canara Bank and InterGlobe Aviation, he added.

Disclosure: Reliance Industries Ltd is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.