Technical View: Nifty forms a 'Shooting Star' pattern; tread with caution

The Nifty50 after opening above psychological 11,000-mark hit a fresh five-month high following strong global cues, but saw some profit booking in later part of the session on Thursday.

The index formed a ‘Shooting Star’ kind of pattern on the daily charts. Traders turned cautious ahead of June retail inflation and May industrial output data due later in the day.

A 'Shooting Star' pattern is formed when the index comes under selling pressure as traders start booking profits at higher levels.

This pattern is usually formed in an uptrend and is treated as a reversal pattern, but it would require confirmation before we can conclude that the trend will get reversed in near future.

The BSE Sensex surpassed its previous life time high of 36,443 and made a new record high of 36,699 levels intraday, before ending at all-time closing high of 36,548.41 (up 282.48 points).

The Nifty50 after opening at 11,006.95 rallied 130 points to hit a fresh five-month high of 11,078.30, but traders preferred to book some profits in later part of the session. It closed 74.90 points higher at 11,023.20 and is 148 points away from its all-time high of 11,171.55 seen in January.

Some profit booking at higher levels made traders cautious about coming sessions. Hence the index needs to hold 11,000-mark for further uptrend but if it falls below that level, then there could be some selling pressure, experts said.

"Five consecutive positive closes appears to have provided a good opportunity for short term traders to go for profit booking as indices traded above psychologically important resistance level of 11,000 which resulted in Shooting Star kind of formation with a long upper shadow," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

He said weakness after such formations will get materialised if indices trades below the low point of such a session. "Hence, Nifty50 can come under selling pressure if it trades below 10,999 in next trading session. However, Thursday’s bullish gap zone between 10,999–10,976 can be expected to offer support on corrections."

On breach of 10,976 indices may initially extend their downswing upto 10,900 levels, he said, adding upsides shall once again resume on a close above 11,078 which shall then lead to retest of life time highs.

India VIX fell 1.58 percent to 12.57 levels. On the option front, maximum Put open interest (OI) was at 10,600 followed by 10,700 strike while maximum Call OI was at 11,000 followed by 11,100 strike.

Significant Put writing was seen at 11,000, 10,900 and 11,100 strikes while Call writing was seen at 11,200 and 11,100 strike.

Option band signifies an immediate trading range in between 10,929 to 11,171 zones, experts said.

"Nifty index opened gap up and continued its positive momentum towards 11,078 marks. It registered the highest daily close above 11,000 zones since February 1, 2018 (Union Budget 2018). It formed an Inverted Hammer candle on daily scale as witnessed some profit booking decline in last hour of the session but has been making higher highs – higher lows from last eight trading sessions," Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.

Inverted Hammer is also called as Shooting Star candle.

Taparia said now the index has to continue to hold above 10,975 zones to extend its gain towards 11,080 then life time high of 11,171 zones while on the downside supports are seen at 10,929 then 10,888 zones.

Supports and resistances are gradually shifting higher and now till it holds above 10,929 zones overall trend could remain positive while above 11,080 a fresh leg of new highs could be seen in the market, he added.

Bank Nifty opened gap up and headed towards crucial hurdle of 27,165 zones. It formed an Inverted Hammer Candle on daily scale as slipped by more than 150 points from higher levels.

"Now it has to continue to hold above 26,750 zones to extend its move towards 27,165 then 27,400 zones while on the downside support exists at 26,600 zones," Taparia said.