Technical View: Doji formation after weakness signals possible comeback for Nifty bulls; Bank Nifty snaps 3-day losing streak

Nifty outlook for December 31

• Generally, the appearance of Doji pattern after weakness and near a support level signals the possibility of a bullish comeback, and a higher-bottom formation could be on the cards. However, this would require confirmation in the following session.

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The Nifty 50 showed a healthy recovery in the afternoon session and closed flat amid volatility on December 30, the monthly F&O expiry session. The index continued its downtrend for the fourth consecutive session and remained below short-term moving averages (10- and 20-day EMAs, and the 200-day SMA). However, it took support at the upward-sloping support trendline and recouped losses to form a Doji-like candlestick pattern on the daily charts, indicating indecision between bulls and bears.

Generally, the appearance of such a pattern after weakness and near a support level signals the possibility of a bullish comeback, and a higher-bottom formation could be on the cards. However, this would require confirmation in the following session. The 26,000–26,100 zone is expected to act as a hurdle on the upside, while support is placed in the 25,850–25,800 range, according to experts.

After opening flat, the Nifty 50 attempted to move toward the 26,000 level but lost momentum in morning trade and hit an intraday low of 25,878. The index recovered its losses in the afternoon session and again marched toward the 26,000 zone. It touched a day’s high of 25,977 in late trade before closing 3.25 points lower at 25,939.

“The bulls are attempting a comeback after the recent weakness. Confirmation in the form of a sustainable upward move on Wednesday could validate a higher-bottom reversal pattern and also open up a bounce-back in the market,” said Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities.

According to him, immediate support is placed around the 25,850–25,800 levels, while the next overhead resistance is seen at 26,100.

Weekly options data suggested that the 26,000 level is expected to be a key zone for a strong directional move. Immediate support is placed at 25,900, while the 26,100–26,300 zone could act as a resistance area.

The maximum Call open interest was seen at the 26,000 strike, followed by 26,300 and 26,200, with the maximum Call writing at the 26,000, 26,300 and 26,200 strikes. Meanwhile, the 26,000 strike held the maximum Put open interest, followed by the 25,900 and 25,600 strikes, with the maximum Put writing at the 25,900, 26,000 and 25,600 strikes.

Bank Nifty

The Bank Nifty outperformed the benchmark Nifty 50, rising 239 points to close at 59,171 on above-average volumes, snapping a four-day losing streak after taking support at a rising support trendline. The banking index climbed above short-term moving averages but failed to sustain above the midline of the Bollinger Bands on a closing basis.

The RSI, at 53.25, is on the verge of a bullish crossover, while the Stochastic RSI turned slightly positive. The MACD remained below the reference line, though weakness in the histogram faded somewhat.

On the daily chart, the index formed a bullish engulfing-type candlestick pattern (not a classical one) after weakness, reflecting underlying strength.

“On the upside, major resistance is placed near the 59,550 level, while the support base lies in the 58,700–58,800 zone,” said Hrishikesh Yedve, AVP – Technical and Derivative Research at Asit C Mehta Investment Intermediates.

As long as the Bank Nifty holds above 58,700, short-term traders are advised to continue with a ‘buy-on-dips’ strategy, he added.

Meanwhile, the India VIX fell 0.44 percent to 9.68 and remained near the lower zone as well as below key moving averages, providing comfort to bulls.