Moneycontrol
Dec 05, 2017 04:24 PM IST | Source: Moneycontrol.com

Technical View: Nifty forms a ‘Doji’ candle on charts ahead of RBI policy outcome

A Doji is an indecisive pattern and investors should wait for Wednesday’s candle to give more insight into the trend. Formation of Doji, after 5 days of consolidation is a positive sign and if the index stays above 10,100-10,150 in the next few sessions, there are chances of a relief rally.

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The Nifty50 which started on a muted note failed to gain momentum and closed at the same level by closing making a ‘Doji’ candle on the daily candlestick charts on Tuesday ahead of Reserve Bank of India’s monetary policy outcome.

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.

The Nifty50 opened at 10,118.25 and closed virtually at the similar level at 10,118.35 thus forming a 'Doji' pattern on Tuesday. It rose to its intraday high of 10,147.95 which made up for the long upper shadow and an intraday low of 10,069.10 which made a long lower shadow.

The index still trades below its crucial short-term moving averages such as 5-DEMA, 10-DEMA, 20-DEMA, and 13-DEMA. Tracking the momentum, the 5-DEMA has moved below 50-DEMA which is a bearish sign.

A Doji is an indecisive pattern and investors should wait for Wednesday’s candle to give more insight into the trend. Formation of Doji, after 5 days of consolidation is a positive sign and if the index stays above 10,100-10,150 in the next few sessions, there are chances of a relief rally.

The trend would shift in favour of bears if the index breaks below 10,030. The index has to negate its formation of lower highs – lower lows to witness a bounce back move towards 10250-10300 levels.

“It was heartening to see Nifty50 registering an indecisive formation called Doji after 5 days of correction. This kind of formation if followed by a strong positive close in next trading session may hint towards the end of correction or sustainable relief rally,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Hence, for time being it is imminent for Nifty50 to sustain above 10030 levels where crucial support is available. Besides, there will be a higher possibility of one corrective structure getting culminated below 10,094 levels thereby paving the way for a pullback rally and Tuesday’s low of 10069 with a Doji can be pointing towards that though it is too early to conclude for the same,” he said.

Mohammad further added that Niftybank tested its 50-days moving average and closed in a positive terrain suggesting that traders are optimistic about the index components ahead of RBI monetary policy.

“Any positive cues from the policy may spike up the index. For time being trade set up looks advantageous to the bulls unless they breach 10030 on a closing basis,” he said.

India VIX moved up by 1.01 percent at 15. Rising volatility is giving the grip to bears and showing short-term concern for long positions.

On the options front, maximum and significant open interest stands at 10,000 strikes with the outstanding position of around 86 Lakh shares while maximum Call OI stands at 10,500 followed by 10,300 strikes.

“Fresh Put writing at 10000 strikes while Call writing at 10100 and 10200 strikes. Nifty managed to hold near to immediate support but option data and volatility is not giving any clue for the reversal as of now,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The Nifty index continued its formation of lower highs – lower lows for the fifth consecutive session and corrected towards 10069. Formation of a Doji candle post the decline of six sessions is giving an early sign of a pause in selling pressure if follow up happens,” he said.

Taparia further added that the index has to negate its formation of lower highs – lower lows by holding above 10150 to witness a bounce back move towards 10250-10300 zones while a hold below 10094 could continue its weakness towards 10000 zones.
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