Technical View: Nifty forms Shooting Star pattern, positional traders can hold short positions

The Nifty50 started the day on a strong note to rise more than 200 points but it failed to hold on to the gains towards the closing due to profit booking amid growing concerns over a spike in coronavirus infections and US-China tensions. Profit booking in Reliance Industries, the index heavyweight, after its 43rd annual general meeting also dragged the market.

The index closed below its opening levels and formed a bearish candle that resembled a Shooting Star pattern on 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 will require confirmation before it can be concluded that the trend will get reversed.

The selling pressure can extend if the index fails to defend 10,562 levels in the coming session, say experts.

India VIX fell by 1.31 percent to 26.29 levels. Overall, lower volatility ruled out major decline but suggests a limited upside, experts say.

Positional traders with a high-risk appetite should hold short positions, with a stoploss above 10,800 on a closing basis and look for a bigger target of 10,200, said Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in. Intraday traders can consider fresh shorting below 10,560 for a modest target of 10,485.

After opening strong at 10,701, the Nifty touched an intraday high of 10,827.45 but gave up most gains in the last 90 minutes of the trade to hit the day's low of 10,577.75 before signing off the session with 10.80 points gains at 10,618.20.

"The Nifty50 registered a bearish candle which resembles a Shooting Star pattern as the bulls gave up a substantial part of the gains from the intraday high of 10,827 levels. This counter-attack by the bears in the later part of the session appears to have decimated the recovery hopes of the bulls by altering the trajectory of the markets to sell on rallies unless Nifty registers a close above 10,850 levels," Mohammad said.

However, if the bulls manage to defend 10,562 levels on a closing basis in the next session then they can chalk out a new trading range between 10,850 and 10,560. But, the moment 10,560 is breached on a closing basis, the correction shall get accentuated with eventual targets placed around 10,200 levels.

Strength can’t be expected in the Nifty unless it registers a close above 10,800, he said.

Options data suggests an immediate trading range of 10,450-10,850 for the Nifty. Maximum Put open interest was at 10,000 followed by 9,000 strike, while maximum Call open interest was at 11,000 followed by 11,500 strike. Call writing was seen in 11,000 and 11,400 strikes, while Put writing was seen at 10,400 and 10,100 strikes.

The Bank Nifty opened positive and gradually extended its move towards 21,935 in the first half of the session. However, it wiped out all the gains to close 51.40 points down at 21,340.80 to form a bearish candle on the daily charts.

"The index managed to negate the formation of lower highs - lower lows after three trading sessions but formed a bearish candle on the daily scale as supply pressure was seen at higher levels," Chandan Taparia, Vice President - Analyst-Derivatives at Motilal Oswal Financial Services said.

"RSI oscillator gave a breakdown on the daily chart, which doesn't bode well for the bulls. Now, till it holds below 22,000 levels, profit-booking decline can be seen towards 21,000-20,800 levels."