Technical View: Nifty forms Shooting Star pattern, traders should avoid buying dips in haste

After a few volatile hours, the Nifty50 lost the game in the afternoon as the bears took charge of Dalal Street on November 19. The index snapped a four-day winning streak to close below the 12,900-mark and formed a small-bodied bearish candle that resembled a Shooting Star on the daily charts.

Weak global cues due to rising coronavirus cases in the West dented sentiment. Selling was seen in all sectors barring FMCG. Banking and financials were the worst hit.

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.

The selling pressure can be extended if the index falls decisively below the 12,800-mark in the coming sessions.

For the time, traders should avoid buying the dip in a haste, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol. Intraday traders can short below 12,740 and look for a modest target of 12,650 by placing a stop above intraday high.

The Nifty50 started off lower at 12,839.50 but gained up to 12,963 amid volatility but was caught in the bear trap in the afternoon and fell sharply to hit an intraday low of 12,745.75. The index fell 166.60 points or 1.29 percent to 12,771.70.

"The bulls appear to have grounded by the market as the Nifty50 wiped out the gains of preceding three trading sessions before signing off the day with a Shooting Star kind of formation. It also closed below its 5-day Simple Moving Average, confirming some sort of weakness in the ongoing strong uptrend," Mohammad said.

According to him, if the index settles below 12,800 in the next session on a closing basis then it may kick in much needed corrective downswing with initial targets of 12,600 levels.

Unless the bulls make a strong come back in the next session with a close above 12,850, upsides shall remain capped at around 12,963, he said.

The volatility increased but was still below 20 levels. India VIX was up over 2 percent to 19.57 levels at the close.

"The market continues to show a lack of upside momentum around the resistance zone of the Nifty50 Index level of 12,930-12,950. As of now, both the momentum indicators RSI and MACD are showing negative divergence," Ashis Biswas, Head of Technical Research at CapitalVia Global Research Limited- Investment Advisor said.

From a short-term perspective, Biswas retained a cautious stance, saying the current rally was not supported by other bullish technical evidence.

The Bank Nifty underperformed the Nifty after consistent outperformance in the last few sessions. The index traded lower throughout the session as it opened down at 29,302.60 and corrected 930 points to hit an intraday low of 28,819.55.