Technical View: Nifty forms long-legged Doji pattern, use rallies to short the market

The Nifty50 bounced back to reclaim the 11,500-mark intraday as the bulls made a comeback after being mauled by the bears in the previous session.

It was a volatile session as the Supreme Court gave telecom companies 10 years to telecom companies to pay the adjusted gross revenue (AGR) dues and the markets reacted to the GDP data that was released after the hours the previous day.

The index opened higher at 11,464.30 following positive global cues and climbed to 11,553.55, but witnessed a roller coaster ride and saw some selling pressure at higher levels. The index showed a good recovery in last hour of trade to close 83 points higher at 11,470.30.

The index closed near opening levels and formed long-legged Doji pattern on the daily charts.

A typical long-legged Doji pattern is formed when the opening price is almost equal to the closing price but with a lot of intraday movement on either side.

“It is critical for the Nifty to sustain above 11,325 levels for a couple of sessions to retain bullish bias as bounces in the near term may remain vulnerable for a selloff," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

In case 11,325 is breached on a closing basis, it will signal the resumption of the downswing with initial targets placed around 11,100, he said.

Considering the sharp reversal seen on August 31, the index can eventually lead to bigger downswing with targets placed around 10,900.

Any pull-back attempt into the 11,550–11,600 zone shall be encountered with selling pressure, he said.

Traders should make use of rallies to short this market with a stop above 11,700 on a closing basis, Mohammad said.

The fall in volatility after the spike on August 31 also supported the markets. India VIX fell by 4.55 percent from 22.83 to 21.80 levels.

"A spike in volatility from lower levels suggests a volatile swings but overall lower VIX on weekly basis could provide support to the market at key levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services told Moneycontrol.

The options data indicated that the positional wider trading range for the Nifty can remain at the 11,200-11,800 level in the coming days.

On the options front, maximum Put open interest was at 11,000 followed by 10,500 strike, while maximum Call open interest was at 12,000 followed by 11,500 strike. Marginal Call writing was seen in 12,100 and 11,800 strike while Put writing was seen at 11,000 then 11,200 strike.

The Bank Nifty opened positive but failed to move above 24,200 and drifted towards 23,500. It respected the immediate support of 23,400-23,500 and closed at 23,812, up 57.65 points

It formed a high-wave candle on the daily scale but remained in the lower part of the trading range of the last session.

"It formed an Inside Bar but bounces are being sold with capped upside momentum. Now it has to cross and hold above 24,000 levels for a move towards 24,500 and 25,200 while on the downside now key support exists at 23,200 levels," Taparia said.