Technical View | Doji candlestick pattern formed, Nifty action raises caution for bulls at new highs

Nifty likely to see some consolidation in coming days

The immediate recovery amid volatility in the last couple of hours of trade helped the Nifty50 clock a fresh record closing high and continue the upward journey for the seventh consecutive session on December 6. But the formation of a Doji kind of candlestick pattern on the daily charts after the record highs along with momentum indicator RSI (relative strength index at 84) reaching overbought levels, and increasing volatility indicated some caution in the market and increased possibility of profit-taking in the coming days, though overall, the mood remains positive in short term, said experts.

The Nifty50 opened higher by around 100 points at 20,951 and remained volatile during the day. The index hit an intraday low of 20,852 in the afternoon but rebounded immediately and hit a fresh all-time high of 20,962 in late trade. Finally, the index settled at a new closing high of 20,938, up 83 points.

"A small negative candle was formed on the daily chart with a long lower shadow. Technically, this pattern indicates a formation of Dragonfly Doji type candle pattern at the all-time highs," Nagaraj Shetti, senior technical research analyst, HDFC Securities said.

Though this market action alerts caution for bulls at the new highs, a reasonable decline in subsequent sessions is likely to confirm short-term top reversal for the market, he said.

He further said that having moved up sharply in the last few sessions and the placement of hurdle around 20,910 levels (61.8 percent Fibonacci extension), consolidation or minor correction from near 21,000 levels in the short term is possible. "Immediate support is placed at 20,800 levels.

The maximum weekly Call open interest remained at 21,000 strike and 21,500 strike with Call writing at 21,100 strike and then 21,300 strike, while the maximum Put open interest was seen at 20,800 strike followed by 20,500 strike with Put writing at 20,900 strike and then 20,800 strike.

The above options data suggested that 21,000 is expected to remain the key resistance area in the near term, with support at the 20,800-20,500 area.

However, the Bank Nifty already witnessed profit booking after the recent run-up and underperformed benchmark indices, forming a long bear candle after a High Wave or Doji-kind of candlestick pattern in the previous session. The index fell below the 47,000 mark, down 178 points at 46,835.

"The Bank Nifty is now in a consolidation mode which can happen in the range of 46,400-47,200 over the next few trading sessions," Jatin Gedia, technical research analyst at Sharekhan by BNP Paribas said.

Meanwhile, the volatility continued to trade above the 200-day EMA (exponential moving average) and sustained an uptrend for the third straight session, indicating some kind of caution for bulls though the Nifty was at a new record closing high. India VIX, the fear index, rose by 2.1 percent to 13.74 levels, the highest closing level since March 28 this year, from 13.46 levels.