Technical View | Nifty forms Doji pattern, traders seem to be cautious ahead of Fed meeting

Representative image.

Representative image.

The Nifty50 fell for the first time in the last seven consecutive sessions on July 25. It has seen the formation of a small-bodied bearish candlestick pattern which resembles a Doji kind of pattern formation on the daily charts with lower high- lower low compared to the previous day but respected 16,610 (the low point of last Friday) and has taken support around that level. Also, it has respected the 200-day exponential moving average (EMA around 16,520) intraday.

All these aspects indicate that this can be a profit taking after a six-day run-up we saw till last Friday, and traders seem to be cautious ahead of the US Federal Reserve’s July policy meeting. As far as it gets support at 16,520 levels and around the big gap area of 16,360-16,490 levels created in the previous week, the positive trend seems to be intact, experts said.

The selling in auto, pharma, select banks, FMCG and financial services stocks pulled the market down. The broader markets were also under pressure, largely may be due to profit taking as the Nifty Midcap 100 index was down 0.09 percent and the Smallcap 100 index declined 0.6 percent on weak market breadth. About three shares declined for every two shares rising on the NSE.

The Nifty50 opened lower at 16,663 and remained in negative terrain throughout the session. It touched an intraday high of 16,706 and low of 16,564, before closing the day at 16,631, down 88.5 points.

“The bulls appear to be adopting a cautious stance as global markets are heading for an event related to a rate hike. In this process, they resorted to profit booking which depicted an indecisive formation like Doji. Hence, going forward, markets shall remain volatile as the near-term trend will be dictated by the outcome of the Fed moves,” Mazhar Mohammad, Founder and Chief Market Strategist at Chartviewindia said.

Technically, Mohammad thinks that more weakness shall not be expected unless the index closes below its 200-day EMA whose value is placed around 16,520 levels. In that scenario, initially, the index shall make an attempt to bridge the bullish gap present between 16,490 and 16,359 levels registered on July 20, he said.

Contrary to this, the market expert said strength in the index shall be expected at a close above 16,752 levels.

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Therefore, for the time being, he advised short-term traders to avoid index bets by shifting their focus to stock-specific opportunities.

Oscillators like RSI (relative strength index) and Stochastic also showed a downward move, indicating that the sentiments may have turned negative ahead of the Fed meeting.

The volatility index India VIX also increased sharply by 6.18 percent to 17.68 levels, making the trend favourable for bears. It is negative but unless and until it stays below 20 levels, one should not get worried about the trend, experts said.

On the option front, we have seen a maximum Call open interest at 17,000 strike followed by 16,500 strike while there was a maximum Put open interest at 16,000 strike and then 15,500 strike. Call writing was seen at 17,000 strike followed by 16,900 strike while Put writing was seen at 16,200 strike and then 16,400 strike.

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The option data indicated that the trading range for the Nifty50 in coming sessions would remain at 16,400-17,000 levels.

Bank Nifty opened positive at 36,767 and after spiking to 37,000 levels, it came down by 550 points. It moved within a range and recovered in the second half but finally closed near its opening levels, with a loss of 12.55 points at 36,726.

The banking index formed a Doji kind of pattern on the daily charts and has been forming higher highs-higher lows from the last six sessions. Now it has to hold above 36,666 levels to witness an up move towards 37,000 and 37,250 levels while on the downside, the support is seen at 36,500 levels followed by 36,250 levels, Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services said.

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On the stocks front, we have seen a positive setup in Navin Fluorine International, GAIL, SRF, Tata Steel, Jindal Steel and Power, and Indian Hotels, whereas weakness was seen in Bandhan Bank, Mahindra & Mahindra, IndiaMART InterMESH, Indraprastha Gas, ICICI Lombard General Insurance, Piramal Enterprises, Dixon Technologies, Alkem Laboratories, Ipca Laboratories, HDFC AMC and ONGC.

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