Technical View: Nifty forms ‘Dragonfly Doji’ on charts; tread with caution

The Nifty50 which slipped towards its crucial support of 9,800 level managed to recoup losses towards the end of the trading day on Tuesday and made an indecisive pattern in the form of ‘Dragonfly Doji’ kind of a pattern on charts.

Dragonfly Doji pattern signals indecision among traders but it also points to the fact that bulls managed to bring the index back above its crucial level of 9,850 which is a positive sign, but the overall trend still remains on the downside and we could retest 9,700 levels.

A Dragonfly Doji is formed when the opening price is almost equal to the closing price which occurs usually at the high point of the day. This pattern is also seen as a trend reversal pattern.

The Nifty50 opened at 9,875.25 and closed at 9,871.50 with loss of just 1.1 points from its previous closing level of 9,872.60. The index rose marginally to 9,891.35 which made a small upper shadow while it slipped to an intraday low of 9,813 which resulted in long lower shadow.

The Nifty50 index continued its selling pressure for the sixth consecutive session and retested the recent support of 9,820 zones. It has been making lower top – lower bottom formation on a daily scale from last five trading sessions.

“After 5 days of consecutive fall Nifty50 registered a Doji kind of indecisive formation suggesting that bears are clueless around 9,800 level, as a result, some short covering might have taken place at lower levels which resulted in pullback,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“If the index trades above 9,800 level a tradable bounce into the zone of 9,915 – 9,960 can be expected in the index going forward and a close above 9,960 can be a sign of strength for expansion of this pullback attempt,” he said.

Mohammad further added that this bounce should not be misread as a change of short-term trend which continues to remain down till 9,685 is broken.

The Nifty50 is trading 0.47 percent lower to its previous series close of 9,918 and trading lower to its VWAP of 10,038 zones. As per the database overall, this series may be flattish as significant Call writing has seen at a higher strike, suggest experts.

On the options front, maximum Put open interest (OI) is at 9,800 followed by 9,700 strikes while maximum Call OI is at 10,000 followed by 10,200 strikes.

“We have seen significant Call writing at 9,850 and 9,900 strikes while fresh Put writing was seen at 9,850 and 9,800 strikes. Option band signifies trading range in between 9,820 to 9,950 zones,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The Nifty recovered by around 50 points from lows and formed a ‘Dragon Fly’ Doji Candle on the daily chart which is an early sign of a pause in the selling pressure if follow-up support happens,” he said.

Taparia further added that if Nifty sustains above 9,880 then it may witness a bounce back move towards 9,950 zones while on the downside support is seen at 9,820 then 9,750 zones.