Technical View: Nifty forms ‘Shooting Star’ pattern; tread with caution

Market

The Nifty50 which opened with a gap on the downside managed to recoup losses towards the closing trade as the index closed just 0.7 points lower at 10,451.80. The Nifty50 formed an ‘Inverted Hammer’ or a ‘Shooting Star’ kind of formation on the daily charts.

A 'Shooting Star' pattern is formed when the index trades well above its opening level but witnesses selling pressure at higher levels as traders start booking profits. This pattern is usually formed in an uptrend and is treated as a reversal pattern.

This pattern is usually formed in an uptrend and is treated as a reversal pattern; hence, investors should remain cautious and for the index to sustain momentum. A close below 10,400-10,375 could signal a trend reversal.

In exact 'Shooting Star' formation, the distance between the lowest price for the day and the closing price must be very small or non-existent. However, in Monday’s trading session there was a small lower shadow.

The Nifty50 opened at 10,431.75 points and rose to a record high of 10,490.45. It hit a low of 10,413.75 before closing 0.70 points lower at 10,451.80.

“The Nifty50 registered Inverted Hammer or Shooting Star kind of formation in which the long upper shadow is suggesting selling pressure from day’s high. Hence, in next trading session if it slips below 10400 levels then Nifty50 shall attract more selling pressure,” Mazhar Mohammad, Chief Strategist - Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Besides the number of bearish parameters on lower time frame charts is increasing thereby warranting a correction in next couple of trading sessions,” he said.

The price behavior of last 11 trading sessions from the lows of 10,124 is looking like a raising Wedge, which should have bearish implications, as both trend lines are converging with a progressive rally.

Mohammad is of the view that a close below 10,375 shall act as a confirmation of the short-term trend reversal. Traders are advised to remain cautious and close short-term trading bets if Nifty50 closes below 10,375 levels. “On the other hand a close above 10,490 shall negate this bearish stance and Nifty may head towards 10,600 level,” he said.