Technical View: Nifty forms Shooting Star pattern, experts say avoid fresh longs

The Nifty50 extended gains of the previous day and week to close higher for the third consecutive session on October 5. The market turned volatile in the afternoon after the Supreme Court deferred its decision on interest waiver case but news of improving health of US President Donald Trump and the rally in IT stocks led by TCS lifted sentiment.

The index formed a small-bodied bullish candle that resembled a Shooting Star pattern on the daily charts.

A 'Shooting Star' pattern is formed when the index comes under selling pressure as traders start booking profits at higher levels. This pattern is usually formed in an uptrend and is treated as a reversal pattern but it would require confirmation.

Experts expect rangebound trade to continue if the index holds above the day’s low. A sharp upside is seen only if the index decisively crosses the crucial 11,600 level.

For the time, traders should avoid fresh long positions in index, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol. Positional traders who are already long should place a tight stoploss below 11,450, he said.

The Nifty50 opened higher at 11,487.80 and hit an intraday high of 11,578.05 in morning trade. It saw some profit-booking at higher levels and touched an intraday low of 11,452.30. It finally settled at 11,503.40, up 86.40 points.

"In next trading session, if the Nifty50 fails to hold 11,452 levels, then it can come under selling pressure," Mohammad said.

As long as the index sustains above 11,452, a rangebound trade between 11,600 and 11,452 can be expected in the next session, he said.

If the index closes above 11,620, then it can strengthen the bullish sentiment by opening up new targets close to 11,800. A close below 11,450 can turn the tide in the favour of the bears, with initial target placed in the 11,347–11,295 zone, according to him.

India VIX was up by 7.38 percent from 18.35 to 19.70 levels.

On the options front, maximum Put open interest was seen at 10,500 followed by 11,000 strike, while maximum Call open interest was at 12,000 followed by 12,500 strike. Marginal Call writing was seen in 11,800 and 12,100 strike while Put writing was seen at 11,500 then 11,400 strike.

The options data indicates a wider trading range of 11,000 to 11,800 for the Nifty while the immediate range could be 11,300-11,700.

The Bank Nifty opened positive and continued buying interest towards key hurdle of 22,750 zone but failed to sustain at higher levels. It formed higher tops-higher bottoms on the daily scale but formed a Doji candle with long upper shadow, which indicated absence of follow-up buying interest. The index closed 125 points higher at 22,371.

"Now the index needs to hold above 22,222 to witness an upmove towards 22,750 then 23,200 while on the downside, key support exists at 21,750 then 21,500," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in TCS, Wipro, Cadila Healthcare, Marico, Aurobindo Pharma, Sun Pharma, JSW Steel, Godrej Consumer Products, Tech Mahindra, Divis Labs and Infosys while weakness was seen in Indiabulls Housing Finance, IGL, Bharti Airtel and Container Corporation, he added.