Technical View: Nifty forms ‘Small Bearish Candle’ ahead of expiry; avoid buy on dips

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The bulls failed to maintain their control over D-Street in the last hour of the trading session on Wednesday and closed below its crucial support zone of 10,500 levels. The index made a small bearish candle on the daily candlestick charts ahead of December expiry.

The Nifty50 corrected after making a fresh all-time high but bounced back from its 5-day exponential moving average (5-DEMA) placed at 10,474 to close at 10,490, down 40 points. It rose to a fresh record high of 10,522.40.

A Hanging Man type pattern formed in the previous trading session gave a heads up to investors that the momentum is waning. Investors are advised to remain cautious and avoid buying on dips until some signs of strength are visible.

“Fear appears to have gripped the traders at higher levels as Nifty50 failed to witness follow-through buying to Tuesday’s trading session new life-time highs as it registered a small bearish candle in Wednesday’s session,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“As our twin momentum oscillators generated a sell signal simultaneously correction should ideally get extended for next couple of trading sessions unless Nifty50 recovers and closes above 10,550 levels,” he said.

Mohammad is of the view that on the downsides initial supports should be available close to 10,400 levels whereas upsides, if any, shall continue to be capped around 10,600 – 10,650 levels.

As risk-reward ratios also not in favour of bulls, Mohammad advises traders to remain in cash levels and to avoid buying initial dip without signs of strength.

India VIX moved up by 3.65 percent at 12.49. Volatility moved higher for the second session in a row. Overall lower volatility is supporting the Bullish bias of the market, as long as the number stays below 15.

A sudden drop in the index could indicate some caution ahead of December F&O expiry. Till now, the Nifty rolls were 47 percent, up from 30 percent recorded in the previous trading session.

On the options front maximum Put Open Interest (OI) was seen at strike price 10,000 which has accumulated 64 lakh contracts, followed by 10,200 which has 47 lakh contracts.

Maximum Call OI was seen at strike prices 10,600 with 58 lakh contracts in open interest, followed by 10,400 which has 49 lakh contracts in open interest.

The Nifty50 corrected after making a fresh all-time high and made a small candlestick which is comparatively same as the previous day's trading range indicating a formation of the possible Tweezer top.

“A tweezer top is a reversal pattern which is a topping formation which is indicative of a shift of bias in perception of the market. The first candle is a bullish candle which signals a fresh bullish buying while the second candle is having almost same high and low range while it is negative,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“It completely negates the previous day action and indicates an exhaustion in bulls while the swift change in a stronghold in case the tops being held for next trading sessions,” he said.