The Nifty50 which started on a positive note failed to hold on to gains and closed flat on Tuesday making a ‘Shooting Star’ kind of pattern on the daily candlestick charts.
A ‘Shooting Star’ pattern is formed when the index comes under selling pressure as traders start booking profits as it emerges higher levels.
This pattern is usually formed in an uptrend and is treated as a reversal pattern, but it would require confirmation before we can conclude that the trend will get reversed in near future.
In exact ‘Shooting Star’ formation, the distance between the lowest price for the day and the closing price must be very small or nonexistent. However, in Tuesday’s session, Nifty50 opened at 10,389 and slipped to an intraday low of 10,377. It closed 5 points higher at 10,426.
The bulls look very much in control and the short coverings move could extend for a couple of more sessions. The next crucial levels which could act as stiff resistance for the bulls is 10,478 which is close to its 50-DEMA which is placed at 10,492.
If the index manages to close above its 50-DEMA then the rally could extend towards 10600 where there is an accumulation of maximum Call open interest (OI).
“Bears appear to have succeeded in trapping the bulls at intraday high of around 10470 levels in the post-luncheon session as Nifty50 witnessed a sharp correction of 90 points within few minutes before signing off the day with a shooting star kind of formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“However, the macro technical picture of the session doesn’t look so grim as bulls succeeded in hammering out the bottom within 15 minutes at intraday low of 10377 after a sharp crack that too with almost 2:1 advance-decline ratio which is not a mean achievement on such a day,” he said.
It looks like bulls are pretty much in the game and unless 10377 is breached in next session selling pressure may not be that severe going forward.
Mohammad further added that for bulls to regain their strength needs to close above Tuesday’s high 10478 levels which is also close to 50 Day EMA (10492) which is again a critical resistance point.
“Hence, unless Nifty50 conquers 10492 on the closing basis a bigger upmove may not be witnessed whereas bears to establish upper hand need to push the indices below 10377 levels. Till then traders should prepare for sideways consolidation for near term,” he said.
India VIX fell down marginally by 0.20% at 14.46. We require volatility to decline below 13-13.50 to extend its recent bounce back move.
On the options front, Maximum Put open interest is at 10000 followed by 10400 strikes while maximum Call open interest is at 10500 followed by 10700 and 10600 strikes. Fresh Put writing at 10400 and 10500 strikes while significant Call writing was seen at 10700 strikes.
“Option band signifies a trading range between 10,300 to 10,600 zones. On the technical front, the Nifty50 index continued its formation of higher highs – higher lows but had a volatile roller coaster ride in the market. It formed a Shooting Star candle on the daily scale which indicates that bears are active at higher levels to push the index to lower zones,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“It managed to cross previous week’s high of 10,441 but faced hurdle near to its 50-DEMA. Now if it fails to hold 10,380 zones then weakness could be seen towards 10,333 and then towards 10,276 while on the upside hurdles are seen at 10,525 zones,” he said.