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Technical View: Nifty forms Dragon Fly Doji candle, analysts call for caution on long side bets

Traders should exercise the utmost caution with their long side bets as the market may remain both listless as well as volatile during the monthly expiry session, Mazhar Mohammad of said.

December 30, 2020 / 05:24 PM IST

The Nifty50, after volatility, gained strength in the last 90 minutes of trade and marked a fresh record high near 14,000 on December 30, the eve of December derivative contracts expiry, aided by cement, metals and auto stocks.

The Nifty opened higher at 13,980.90 and immediately slipped into the red to hit the day's low of 13,864.95 amid volatility. The index gained momentum in the afternoon trade and hit an intraday record high of 13,997 before signing off the session 49.40 points higher at 13,982.

The index formed a Dragon Fly Doji pattern on the daily charts. The pattern signals indecision among traders but also points to the fact that the bulls managed to bring the index close to the opening level. The index has to clear the immediate hurdle of 14,000 for the bullish sentiment to continue.

The index continued its winning streak for the sixth consecutive session and came close to the psychologically important 14,000 mark but as the index is at overbought levels, the coming sessions could be volatile and the expiry of futures & options contracts may also increase volatility.

The volatility increased further and climbed above the 21 mark but the market sustained the uptrend amid volatility. India VIX moved up by 1.54 percent from 20.79 to 21.11 levels.


"Despite trading in a positive fashion, this indecisive price action is accompanied with narrow trading ranges of last three trading sessions, which are accompanied by overbought readings on momentum oscillators, but these technical oscillators/indicators are yet to generate sell signals," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at told Moneycontrol.

When markets traded in narrow ranges with overbought levels in the recent past around December 20, the index witnessed a sudden single day flash crash. Hence, traders should exercise the utmost caution with their long side bets as the market may remain both listless as well as volatile on monthly expiry session, he said.

Any strength beyond 14,000 shall expand the rally towards 14,150 levels, Mohammad said.

On the option sfront, maximum Put open interest was seen at 13,500 followed by 13,900 strike, while maximum Call open interest was at 14,000 followed by 14,100 strike. Marginal Call writing was seen at 14,100 then 14,050 strike while Put writing was seen at 13,900 then 13,850 strike.

Options data indicated that the immediate trading range for the Nifty could be 13,800 to 14,100 levels.

The Bank Nifty opened positive at 31,479.80 but failed to surpass 31, 500 zone and tested immediate support of 31,000 levels in the initial half. Later in the day, it saw good recovery from lower zones and managed to close on a flattish note with a loss of 19.50 points at 31,303.

The index formed a bearish candle on the daily scale, as the closing was lower than opening levels but continued its higher highs-higher lows formation of the last five sessions.

"The Bank Nifty has to continue to hold above 31,000 to witness an upmove towards 31,500 and 31,750, while on the downside, support is seen at 30,800 and 30,500 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in SAIL, UltraTech Cement, Balkrishna Industries, UPL, Grasim, Bajaj Finance, ACC, Eicher Motors, Maruti Suzuki, DLF, Dabur, Godrej Consumer Products, Tech Mahindra, Tata Steel, Asian Paints and Kotak Mahindra Bank, while weakness was seen in PNB, REC, Marico and Bharat Forge, he added.
Sunil Shankar Matkar
first published: Dec 30, 2020 05:24 pm
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