Technical View: Nifty forms ‘Long Legged Doji’ on charts; 9850 crucial for bulls

The Nifty50 which started with a gap down took support at its 10-days exponential moving average (DEMA) on Tuesday and made a Long Legged Doji kind of pattern on the daily candlestick charts.

The fall was largely led by ITC which closed 12 percent lower dragged down Nifty below its 5-DEMA placed at 9848, but Bulls managed to pull the index back above 9,800 towards closing.

A Long-legged Doji pattern is formed when the opening price is almost equal to the closing price but there was a lot of price action on both sides which is depicted by long shadows.

The Nifty50 opened at 9,832.70 and closed virtually at the similar level at 9,827.15 thus forming a 'Doji' pattern on Tuesday. It rose to its intraday high of 9,885.35 which made a long upper shadow and fell to an intraday low of 9,792.05 which made a long lower shadow.

It is a neutral pattern which suggests that the neither bulls nor bears were able to regain control on the D-Street but for bulls to take back charge of D-Street, Nifty50 has to cross above 9,850.

The way market sold off during the last one hour of trade suggests that traders are exiting their long positions and it would be prudent for investors to book some profits at current levels and don’t add any fresh long positions because the corrections could last till 9,580.

“The Nifty50 registered a Long Legged Doji kind of formation as it witnessed a gap down opening but managed to close almost where it has opened,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“But, the key take away from today’s intraday price behaviour is that recovery attempt resulted in a renewed sell off which is suggesting that market participants utilised intra day pull back to exit their long positions,” he said.

Mohammad is of the view that as our twin momentum oscillators are also in sell mode we expect this correction to extend further with initial targets of 9580 levels. “For time being 9928 shall be presumed as a top and hence we advise short term traders to close their long positions if any,” he said.

On the options front, maximum Put OI was seen at strike prices 9,800 followed by 9,700 while maximum Call OI was seen at 10,000 followed by 9,900 strikes.

Fresh Call writing was seen at strike prices 10,000 and 9900 while Put Unwinding was seen at strike price 9,900 and lower strikes.

“Fresh Call writing at 9900 and 10000 strikes are now putting pressure and restricting its upside momentum but maximum Put OI at 9800 strikes which might support the market on small declines,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“India VIX marginally moved up by 0.26% at 11.49. We have not seen a major spike in volatility even after the decline of nearly 100 points in the Nifty index which suggests that traders are still intact to their buy on decline strategy by looking at the major market trend,” he said.

For the index to move higher, Taparia is of the view that Nifty has to cross and hold above 9,850 to again get into the comfort zone to retest recent high of 9,928 and then 10,000 mark while on the downside major supports are seen at 9,800 and 9,710 mark.