Technical View: Three White Soldiers on charts as Nifty forms bullish candle again

The Nifty traded higher for a third consecutive session on February 5 to close near week’s high and formed a bullish candle that resembled Three White Soldiers formation on daily charts, a day ahead of RBI monetary policy.

The index recouped 3/4th of the losses seen last week on the back of no negative news in the Budget, favourable oil prices and a rally in global markets.

Three White Soldiers pattern is formed when a stock or an index witnesses three bullish candles which solidify reversal of a downtrend. The closing of the three candles should be higher than the previous candles.

It is a sign of change in investor sentiment and is used by traders to confirm a shift in momentum. This pattern is formed after a period of consolidation or correction.

Even though the index consistently rallied and closed above psychological 12,000-mark, experts advised traders to book profits in long positions, if any, and remain neutral.

The Nifty opened higher at 12,005.85 but slipped to 11,953.35 in the early trade. It, however, recovered immediately and traded higher in the remaining session to hit a day's high of 12,098.15 in the late trade. The index closed 109.50 points higher at 12,089.20.

"The bulls continued their upward march as they registered a positive close for the third consecutive session, which resulted in a Three White Soldiers kind of candlestick pattern hinting at a near-term trend reversal in favour of bulls," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

As the Nifty was staring at a 50-day simple moving average (12,117), which also coincided with a 62 percent Fibonacci retracement level of the fall from the highs of 12,430 to 11,614 levels, some profit booking couldn’t be ruled out in the next one or two trading sessions.

Considering the strength of the upmove, one should make use of such a correction to create fresh long positions, he said.

Mohammad advised traders to retain an optimistic outlook as long as the Nifty sustained above the 11,783–11,789 bullish gap zone.

If the Nifty sustains above 12,120, then next target should be placed around 12,266, he said. An initial sign of weakness could emerge on a close below 11,953.

Volatility continued to decline, as traders expect the Reserve Bank of India to keep rates unchanged, but the commentary would be closely watched.

India VIX fell by 2.96 percent to 13.98 levels.

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

Put writing was seen at 11,900 then 11,600 strike while Call writing was seen at 12,500 followed by 12,400 strike.

The Bank Nifty index opened with an upside gap and continued its positive momentum throughout the session. The banking index closed 1.03 percent higher at 31,002 and made a positive candle for the third consecutive session.

"The index surpassed its major hurdle of 30,900 levels and approaching its 50-DEMA. Momentum oscillator RSI has given a falling trend line breakout and thus, showing strength in the near term. At the current juncture, if it manages to hold above 30,800 levels, it could extend its gains towards 31,300 then 31,500 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

On the flip side, the gap area of 30,600-30,500 would now act as strong support and below that next support is placed at 30,300-mark, he added.