Technical View: Nifty forms 'Dragonfly Doji' pattern on charts; keep stop loss at 10,390

It was a roller-coaster ride for the market but late buying by the bulls pushed the Nifty to close above psychological 10,500 levels which resulted in a 'Dragonfly Doji' type of pattern on the daily candlestick charts on Monday which also resembles a 'Hammer' like formation.

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 clear its immediate hurdle of 10,547 for the bullish sentiment to continue.

Traders are advised to trade with a strict stop loss at 10,390 levels and look for a target of 10,770, experts said.

The Nifty50 after opening higher at 10,524.20 traded rangebound for major part of the session, but gained strength in late trade to close 40 points higher at 10,512.50.

"Monday's price behaviour is looking quite interesting as Nifty50 remained choppy and volatile for most part of the session but managed to sign off the day around its highest point which depicted a 'Dragonfly Doji' kind of formation in which open, high and close will remain same," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

Usually when Dragon Fly Doji is registered at absolute bottoms it suggest a major turning point of a trend pointing towards balance of power between bulls and bears after a bigger correction, but in this case as Dragonfly is visible near the 3-day old bottom benefit of doubt can be given to bulls, he said.

Hence, he feels if Nifty50 manages to clear its immediate hurdle of 10,547 in next session then it can expand its pull back move towards its 200-Day Moving Average which is placed around 10,780 levels which also coincides with the bearish gap zone of 10,754–10,843 levels registered on October 4.

He advised traders to trail their stoploss level to 10,390 levels and look for a target of 10,770.

India VIX moved up by 1.06 percent to 18.82 levels. Now VIX has to cool down below 17.50-17 zones to get the pace of buying interest in the market.

On option front, maximum Put open interest (OI) is at 10,000 followed by 10,200 strike while maximum Call OI is at 11,000 followed by 10,800 strikes. Put writing was seen at 10,400 followed by 10,500 strike while meaningful Call writing was seen at 10,700 followed by 10,800 strike which could restrict the upside momentum. Option band signifies a broader trading band between 10,400 to 10,650 zones.

"Nifty index formed a Hammer candle or a Pin Bar as it closed higher after its opening declines which indicates that dips are being bought in the market. It negated its formation of lower highs - lower lows of last six weeks and closed above multiple hurdle of 10,450-10,480 zones," Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services told Moneycontrol.

He said now the index has to continue to hold above 10,450 zones to witness an up move towards 10,550 then 10,600-10,650 zones while on the downside support is shifting higher to 10,400 from 10,350 levels.

Bank Nifty opened positive but failed to surpass previous day's high and remained rangebound for the most part of the trading session. It formed a Hammer candle on daily scale which indicates that buying is visible at lower levels. The index closed 7.80 points lower at 25,388.05.

"It formed a bottom pattern on daily scale and a hold above 25,250 could take it towards 25,650 then 26,000 zones while support shifts higher at 25,000 zones," Taparia said.