Kshitij Anand Moneycontrol News
The Nifty50 witnessed selling pressure for the fifth consecutive day in a row on Friday and closed around its opening level making a ‘Long-Legged Doji’ pattern on the daily charts and a strong bearish candle on the weekly charts.
Weak global cues pulled the index further below its crucial support level of 50-days exponential moving average 9,786 and as long as the index stays below 9,800 bulls might not get a chance to make a comeback on D-Street.
We are approaching a truncated week as markets will remain shut on Tuesday on account of Independence Day holiday. Traders are advised to stay light and wait for more signs that market has formed a bottom before creating long positions or investing in quality stocks.
A typical long-legged Doji pattern is formed when the opening price is almost equal to the closing price but there was a lot of movement on both the sides. The Nifty50 opened trading at 9,712.15 and closed at 9,710.80 on Friday.
The Nifty50 rose to an intraday high of 9771.65 which made a small upper shadow and fell to an intraday low of 9,685.55 which made a small lower shadow on daily intraday charts.
The pattern is neutral in nature and suggests that the neither bulls nor bears were able to create a foothold on the D-Street which suggest that there could be a shift in trend soon. However, it does require confirmation.
“The Nifty50 registered a Long Leg Doji kind of formation but after taking a cut of 1% with a gap down opening. The intensity of fall with around 4 percent cut on weekly basis is clearly pointing towards more pain going forward,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“If Nifty50 is unable to get past 9,800 levels in next few trading sessions then correction can be expected to continue towards next logical targets placed around 9400 levels,” he said.
Mohammad advise traders to wait for proper consolidation and more stable signs before creating fresh long positions.
On the options front, maximum Put OI is seen shifting from 9800 to 9500 strike while maximum Call OI is shifting from 10100 to 10000 strike.
Significant Call writing was seen at 9,800 strikes which is going to shift its resistances to lower zones while fresh Put writing is only taking place at 9,600 and 9,500 strikes. Option band shifting its range to lower zones and thus giving the tight grip to bears.
India VIX moved up sharply by 10.11 percent at 15.19 and has been moving upwards from last five consecutive sessions. VIX is at six months highs and up by around 33 percent in this week, it is the highest weekly surge in volatility since Feb 2016 when VIX jumped by 36.22 percent.
“VIX has been holding above 12.50-13 band and by nature, it has a negative correlation with Nifty index. Rising volatility with falling Put Call Ratio suggests that bears are getting grip on the market,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“Now VIX has to cool down below 12.50-13 to get the market stability else hedging position is advised for leveraged long position. On the technical charts, Nifty formed a strong Bearish candle on the weekly chart and broken its 50 DEMA,” he said.
As long as it remains below 9770-9800 zones weakness could continue towards next support of 9600-9550 zones while on the upside hurdles are shifting lower to 9820 and then towards 9880 zones, suggest experts.
Taparia advises traders to take calculated risk till Nifty index doesn’t cross and hold any immediate hurdle or negates the negative price formation.
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