Technical View: Nifty forms ‘Doji’ candle; keep a stop loss below 11,700

The Nifty50 witnessed profit booking at higher levels on Tuesday and closed near its opening level forming a ‘Doji’ type of candle on the daily candlestick charts.

The Nifty50 surpassed 11,750 but witnessed profit booking near 11,760 which pushed the index towards 11,700 levels but bulls managed to pull the index near its opening level of 11,731. The index finally closed 46 points higher at 11,738.

A 'Doji' is formed when the index opens and then closes approximately around the same level. However, it remains volatile throughout the trading day which is indicated by its long shadow on either side. The candle appears like a cross or a plus sign.

A Doji usually means indecisiveness among the bulls as well as bears, but the momentum still remain strong which could take the index towards 11800 levels; hence, investors should remain long with a stop loss below 11,700 levels, suggest experts.

“Albeit Nifty50 made a strong opening with a gap-up, but by the end of the day it closed almost at the same point where it opened which resulted in a Doji kind of indecisive formation on the charts,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“At this point in time, the index may look as if it is heading higher but the market internals has a different story to narrate as advance-decline ratio remained negative suggesting profit booking across the board,” he said.

Mohammad advises traders to remain cautious and maintain a stop below 11,700 on a closing basis as such a close can be an initial sign of weakness for the near-term. In case the bulls chose to fuel the rally further then it can continue up to 11,850 levels.

India VIX moved up by 1.51 percent at 12.42 levels; however, overall lower volatility suggests that bulls are likely to hold the tight grip on the market.

On the options front, maximum Put OI is placed at 11,500 followed by 11,700 strikes while maximum Call OI is shifting higher to 11,800 then 11,700 strikes.

Significant Put writing was seen at 11,700 followed by 11,750 strikes while Call unwinding was seen at all immediate strike price with fresh Call writing at 11,850 strikes.

“The Nifty index opened positive and hit a new record lifetime high of 11760 marks. It formed a Doji Candle on the daily scale but managed to hold its gains for the entire trading session,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“It has been respecting to its rising channel and a support trend line which confirms its bullish momentum. Now, it has to continue to hold above 11666 to extend its move towards 11777 - 11800 zones while medium-term support is also shifting higher to 11620 zones,” he said.