Technical View: Nifty forms 'Doji'’ candle; keep a stop loss below 9,959 on closing basis

The Nifty50 which opened on a flat note failed to keep the momentum going and witnessed selling pressure around its crucial resistance level of 10,020 on Monday. It made a ‘Doji’ kind of candle on the daily candlestick charts.

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.

The Nifty50 opened at 9988.20 and closed virtually at the similar level at 9,988.75 thus forming a Doji pattern. It rose to an intraday high of 10,015.75 making an upper shadow and fell to an intraday low of 9,959.45 which makes for the long lower shadow.

A 'Doji' is a neutral chart pattern and hence, investors should not make their trading decision based on today’s chart pattern and wait for a couple of more trading sessions. Investors who are holding long positions can continue to remain long with a stop loss below 9,959 levels.

The Nifty index continued its formation of higher highs – higher lows for the sixth consecutive session. It failed to close above its crucial resistance level of 10,000.

“The Nifty50 registered an indecisive pattern called Doji suggesting that traders are clueless about the direction of the market. Lack of follow through to last Friday’s price action is certainly disappointing,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Nevertheless, in the absence of any sell signals on lower time frame charts traders are advised to carry on with their long positions till some signs of weakness accompanied with sell signals on momentum oscillators are visible,” he said.

Mohammad is of the view that if the indices slip below 9,959 levels in next trading session then they shall come under selling pressure. “Traders need to place a stop below 9,959 on a closing basis and continue their long side bets,” he said.

India VIX moved up after the declines of last sixth consecutive sessions. It moved up by 2.45 percent at 11.39 and overall lower volatility suggests a buy on decline sentiment. If VIX continue its up move then this positive momentum could take a pause, suggest experts.

On the options front, maximum Put OI was seen at strike prices 9,800 followed by 9900 while maximum Call OI was intact at 10000 followed by 10100 strikes.

Major Put writing at 10,000, 9900 and 9800 strikes while Call writing was also seen at 10,000.

“Option data suggest that supports are shifting higher but intact Call writing at 10000 is restricting its upside momentum,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Nifty failed to hold above 10000 zones and formed a Doji candle as it closed near to its opening levels. Doji candle suggests that now bears are fighting near to 10k mark after the sharp bounce back of 328 points in last seven sessions from the support of 9685,” he said.

Taparia further added that Nifty has to continue to hold above 9980-10000 zones to extend its up move towards 10080 then a fresh life highs while a hold below 9950 could end its pullback to attract a profit booking towards 9880 and then towards 9850 levels.