Can Nifty50 defend 9K this week after massive selloff at top?

Ah, finally! We could say that Nifty50 recorded a breakout on Tuesday in response to state election results, but the euphoria did not last long as the index closed around its opening level and made a ‘Doji Star’ kind of formation on the daily candlestick charts.

Bulls which took the Nifty50 to a record high of 9,122.75 in morning trade failed to keep the momentum going as index pared gains and closed at 9,087 which was even lower than the opening level of 9,091.65.

The pause in the momentum was not a surprise ahead of crucial 2-day FOMC meet starting 14th March and strong macro data such as IIP and WPI which suggests that the Reserve Bank of India (RBI) due in the month of April.

The good part about Tuesday trading day was the fact that the Nifty50 closed above its crucial resistance level of 9,000 and if the momentum has to continue, it has to close above its crucial level of 9,122-9,250.

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 shadow on either side. It appears like a cross or a plus sign.

A formation of Doji even after a gap-up start is not a good news for the bulls. Overall, the index has been making higher top - higher bottom formation on the weekly charts and supports are shifting higher which is a good sign. Hence, it is still buy on dips market till it holds on to 9,000-8,820 level.

“The Nifty50 index gave a range breakout after the consolidation of last thirteen trading sessions and formed a ‘Doji’ candle on the daily chart as it closed near to opening levels,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Now, the immediate positive trend may remain intact till it holds above psychological 9,000 mark. While on the upside resistances are seen at 9,119 and then towards 9,250 zones,” he said.

The Relative Strength Index or RSI on the daily chart stood at 74.02 which suggests overbought zone, but I hope you remember those famous lines from John Maynard Keynes – ‘Markets can remain irrational for longer than you remain solvent.’

Traditionally, the RSI is considered overbought when above 70 and oversold when below 30.

The Supertrend indicator and MACD still suggests that the trend is up and traders should not worry too much about intraday dips. However, a Doji at the top could also mean a reversal, but that needs confirmation.

“This kind of formation (Doji) is a warning sign of a pause in the immediate trading session our wave counts are pointing for more legs on the upside after a brief pause provided Nifty50 sustains above its critical support level of 8930 which is some 150 points away,” Mazhar Mohammad, Chief Strategist - Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Hence, in next couple of trading sessions a pause or a pull-back in the rally can be an opportunity to create fresh longs with a stop below 8,930 levels,” he said.