Technical View: Nifty forms ‘Doji’ pattern on charts; 10398 crucial for bulls

The Nifty50 pared most of its gains made in trade on Thursday to close around its opening level forming a ‘Doji’ type of pattern on the daily candlestick charts.

A ‘Doji’ is formed when the index opens and then closes approximately around the same level but remain volatile throughout the day which is indicated by its long shadows on either side. The body will be insignificant which will appear like a plus sign on the charts.

It looks like traders preferred to remain on sidelines amid uncertainty around the PSU banking stocks which fell for the second day in a row led by Punjab National Bank (down 12 percent), Bank of Baroda (down 4 percent), IDBI Bank (down 3 percent), and Syndicate Bank (down 2.5 percent).

For bulls to regain control of this market, Nifty should reclaim 10,600 levels to extend its upmove towards 10,700-10,800 levels. A tight stop loss below 10,398 should be kept for a

The Nifty50 which opened at 10,537 rose to an intraday high of 10,618 which made a long upper shadow, but bears quickly took control and pushed the index towards 10,500, which made a long lower shadow on the daily charts.

The index hit an intraday low of 10,511 before recouping losses. It closed 44 points higher at 10,545. The index decisively closed below its 50-DEMA placed at 10,599 levels.

“Thursday’s price action is suggesting that Nifty50 is stuck up in a trading range as bulls failed to capitalise after pushing the indices beyond psychologically important resistance point of 10600 levels as by the end of the day they have given up all the gains which resulted in a Doji kind of formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“However, Thursday’s price action looks slightly advantageous to bulls as they managed to close in the positive terrain after giving up all the gains in the midst of negative news flows which failed to aggravate selling pressure further during the course of the day,” he said.

Mohammad advise traders to focus on stock specific opportunities and for a constructive upmove traders need to watch 10600 level on the upside whereas a close below 10,398 shall accelerate selling pressure.

India VIX fell down by 5.03 percent at 16.31 which is a good sign for bulls. On the options front, maximum Put open interest was seen at 10,500 followed by 10,000 strikes while maximum Call OI was seen at 11,000 followed by 11,100 strikes.

Fresh Call writing was seen at 10,650, 10,750 and 11,000 strikes while Put writing is seen at 10,400, 10,500, 10,550 and 10,600 strikes.

“Sustained Call writing, as well as Put writing, is keeping the index in a trading range with high volatility. Option band signifies a broader trading range between 10,400 to 10,650 zones,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Nifty index remained highly volatile during the day and finally closed near to its opening levels by forming a Doji Candle on the daily chart. It has been taking hurdle at its 50 DEMA from last seven trading sessions and cluster of supply is visible at 10600-10650 zones,” he said.

Taparia further added that if Nifty sustains below 10,480 then weakness could continue towards 10,400 then 10,333 while on the upside immediate hurdles are seen at 10,600 then 10,650 levels.