Technical View: Nifty50 forms Doji pattern, MACD gives a buy signal but consolidation likely

It was a highly volatile session for the market but the buying strength in late trade helped the Nifty50 close higher for the fourth consecutive session on October 16.

The index formed Doji pattern on the daily charts, which indicate some consolidation in the coming session as there is some indecisiveness among bulls and bears, and the index closed near to opening levels.

One interesting thing which was visible on the charts was a buy signal triggered by MACD indicator on the daily charts. MACD stands for Moving Average Convergence/Divergence.

The MACD indicator is basically a refinement of the two moving averages system and measures the distance between the two moving average lines.

The Nifty50 after opening higher at 11,464.95 hit an intraday high of 11,481.05 and low of 11,411.10. It closed 35.70 points higher at 11,464.

"Albeit Nifty50 closed in a positive zone it registered a weak candlestick pattern which resembles Doji kind of formation. Moreover last two sessions of the rally is on the back of negative advance:decline ratio which is a cause for concern for further upmove," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

He said, "Daily MACD chart generated a fresh buy signal hinting at a strengthening momentum in the near term but again this buy signal is on the back of around 400 points rally from the recent lows of 11,090 levels. Hence, for time being market may slip into some sort of consolidation with positive bias as long as Nifty sustains above 11,400 levels."

In that scenario eventually a target placed in the zone 11,554–11,630 levels can be expected but a breach of 11,400 on closing basis shall kick in a short term downswing, he added. Therefore he advised traders to hold long positions, if any, with a stop below 11,400 on a closing basis.

India VIX fell by 2.91 percent to 16.36 levels.

Option data suggests the Nifty could trade in a wide range of 11,200 to 11,600 levels in coming days.

Maximum Put open interest is at 11,000 followed by 11,400 strike while maximum Call open interest is at 12,000 followed by 11,500 strike.

Marginal Put writing was seen at 11,400 then 11,300 strike while Call Unwinding was seen at all the immediate strikes.

Bank Nifty opened positive but failed to hold its gains at higher levels and drifted towards 28,300 levels, closing 0.06 percent at 28,538.80. The index formed a bearish candle on daily scale but at the same time dips are being bought into.

"It is finding support near to 28,000 levels while hurdles are intact at higher levels as it got stuck in broader trading range between 27,500 to 28,800 levels from past nine trading sessions. Now it needs to hold above 28,500 to witness a bounce towards 28,800 then 29,200 zones while on the downside support is seen at 28,000 then 27,750 levels," Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.