Technical View: Nifty forms long-legged Doji candle after 6-day fall, rebound likely but sustainability key

Nifty Technical View

The Nifty 50 recouped nearly 250 points from its day's low of 22,800 (near the January low) amid volatility and closed moderately lower on February 12. This extended the downtrend for the sixth consecutive session, with the continuation of the lower highs-lower lows formation for five straight days. The index formed a Long Legged Doji candlestick pattern on the daily charts after a sharp decline, indicating indecision among bulls and bears, but raising the possibility of a bottom reversal. Even if the index rebounds, sustainability will be key to watch going forward, given the prevailing bearish sentiment.

In the case of a bounce-back, the index may face resistance in the 23,150-23,300 zone. However, in the event of a further decline, 22,800 will act as support, with a break below it potentially bringing more selling pressure, experts said.

The Nifty 50 opened lower and extended its downtrend to hit a day's low of 22,798. It rebounded in the afternoon but could not sustain those gains amid volatility, and finished at 23,045, down 27 points.

Normally, formations like the Long Legged Doji pattern after a reasonable decline indicate chances of a bottom reversal post-confirmation, according to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities.

He further mentioned that the underlying trend of the Nifty is still weak. "However, the interesting pattern formation at the support of 22,800 could hint at a potential reversal pattern from current levels or slightly lower. A confirmation of a reversal pattern could possibly open up a sizable upside bounce in the market," he said.

Immediate support is placed at the 22,800 level, he added, noting that a sustainable move above the 23,150-23,200 levels could open up more upside for the short term.

According to weekly derivative data, the maximum Call open interest was seen at the 24,000 strike, followed by the 23,500 and 23,600 strikes, with maximum Call writing at the 23,000 strike, and then the 23,600 and 23,100 strikes. On the Put side, the 22,500 strike holds the maximum open interest, followed by the 22,700 and 23,000 strikes, with the maximum Put writing at the 22,500 strike, followed by the 23,000 and 22,400 strikes.

The options data indicated that the Nifty may remain in the range of 22,500-24,000 in the short term, with near-term support at 22,700 and resistance at 23,500.

Bank Nifty

The Bank Nifty rebounded after a three-day fall and formed a similar chart pattern to the Nifty 50, indicating the possibility of a trend reversal. The banking index rose by 76 points to 49,479, but the overall trend remains bearish, as the index is trading well below all key moving averages. The intraday low was 48,734.

For the upcoming session, "resistance lies at 49,600, where short covering could accelerate. A breakout above this level may push the index toward 50,000, with 50,600 as the next likely target," said Anshul Jain, Head of Research at Lakshmishree Investments.

Traders should watch for sustained momentum above 49,600, as failure to do so could lead to consolidation, he advised.

The India VIX, the fear index, remained on the higher side, rising 0.17 percent to 14.90, extending its upward trend for the third consecutive session, which adds further discomfort for the bulls.

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