Bulls continued to maintain their dominance on D-Street although bears tried to strengthen their hold soon after the index hit a record high of 9,273.90 on Wednesday. But, bulls pushed the index back towards the opening level making a ‘Dragonfly Doji’ kind of pattern on the daily charts.
Dragonfly Doji pattern signals indecision among bulls as well as bears but it also points to the fact that buying emerged at lower levels and bulls managed to push the index towards opening which is bullish in nature and signals continuation of the trend.
The pattern is formed when the opening price is almost equal to the closing price which occurs usually at the high point of the day. This pattern is also seen as a trend reversal pattern.
The Nifty opened at 9,262.40 and closed at 9,265.15 with gains of just 27.3 points from its previous closing level of 9237.85. The index rose marginally to a record intraday high of 9,273.90 which made a small upper shadow while it slipped to an intraday low of 9,215.40 which resulted in long lower shadow.
The outcome of the Reserve Bank of India (RBI) policy meet on Thursday will be something which will be eyed by market participants. Although most analysts are not anticipating a rate cut but a hawkish commentary could well result in a kneejerk reaction.
There is no reason for traders to go short in this market but it would be wise to trade with a strict stop loss placed at 9,139 because the index is trading at key resistance levels.
“The Nifty registered a Dragon Fly Doji kind of formation in which there is a long lower shadow along with open, high and closing prices are seen around same levels. This kind of formation suggests that the forces of demand and supply are balancing with each other and trend is nearing a potential turning point,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.com.
“Besides, one of our momentum oscillators already generated a sell signal apart from RSI levels which continued to display negative divergence despite new highs by Nifty. Positional traders who can wait for a couple of weeks can have a stop below 9,139 levels on closing basis,” he said.
"This kind of formation ahead of a key event warrant caution on the part of bulls who may buy some more time if RBI comes out with ‘please all’ kind of monetary policy and the rally could well extend towards 9,350 levels," added Mazhar.
The Nifty index continued rallied for the sixth consecutive session by making higher highs and higher lows from the last six consecutive sessions. The supports are also gradually shifting higher which is a positive sign.
“It formed a Dragonfly Doji candle on the daily chart which indicates that buying interest is seen on declines but momentum is missing at higher zone in the absence of aggressive buying interest,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.com.
“It has to hold above 9,250 to extend its up move towards 9,350 and 9,380 while on the downside multiple supports are seen at 9,218 and 9,191 zones,” he said.
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