Moneycontrol
Jan 12, 2018 05:21 PM IST | Source: Moneycontrol.com

Technical View: Nifty forms ‘Dragonfly Doji’ on charts; stay long with stop below 10,592

A Dragonfly Doji pattern signals indecision among traders but it also points to the fact that bulls managed to bring the index towards the opening level. The index has to sustain above 10600 for the bullish sentiment to continue.

Kshitij Anand @kshanand

A roller-coaster ride for investors but late buying by the bulls pushed the index to record closing high on Nifty which resulted in a ‘Dragonfly Doji’ type of pattern on the daily candlestick charts.

Bulls quickly grabbed the opportunity to buy stocks on the first opportunity they got in the trade. The index formed a bullish candle on the weekly charts.

A Dragonfly Doji pattern signals indecision among traders but it also points to the fact that bulls managed to bring the index towards the opening level. The index has to sustain above 10600 for the bullish sentiment to continue.

Investors are advised to stay long on the index with a strict stop loss below 10,592 levels on closing basis. The momentum is strong and investors should not be too worried about intraday dips.

The Nifty50 opened at 10,682.55 and closed roughly at the same level at 10,681.25. The index breached its 5-days exponential moving average to hit an intraday low of 10,597.10 but then bulls came to rescue and pushed the index back above 10,600. It hit a record high of 10,690.40 in trade today.

“The Nifty50 registered almost a ‘Dragonfly Doji kind of formation in which open, high, low remains same suggesting balance of power between bulls and bears. Usually, this kind of formation is seen at major turning points where bulls and bears try to establish their own supremacy,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“However, if we read the weekly price chart in isolation then it is looking like a consolidation breakout with a decent bullish candle. Hence, a strong follow through in next trading session shall strengthen the bullish sentiment else market will continue its insipid way of trading going forward till it breaks down,” he said.

Mohammad is of the view that for time being traders can continue their bullish bets with a stop below 10592 on a closing basis and look for a target of 10,750.

India VIX fell down by 1.98 percent at 13.73. VIX has to hold below 13-12.50 zones to support the fresh leg of the rally with a smooth ride in the market.

On the options front, maximum Put open interest was seen at 10500 followed by 10600 strikes while maximum Call OI is at 11000 followed by 10700 strikes.

Fresh and significant Put writing was seen at 10700 and 10600 strikes which are shifting its support while Call writing is seen at 10750 and 10700 strikes.

“Option band signifies a trading band between 10600-10800 band. On charts, Nifty formed a Dragonfly Doji candle with the long lower shadow which indicates that decline is being bought but bears are also fighting hard in the market,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“It formed a Bullish candle on the weekly chart and registered the highest Daily and Weekly close. Now, the index has to continue to hold above 10600 zones to extend its up move towards 10750 then 10800 zones while on downside supports are seen at 10600 then 10550 levels,” he said.
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