Technical View: Nifty forms Dragon Fly Doji pattern on weekly chart, profit booking can't be ruled out

The Nifty50 continued its upward march for the third session in a row and closed a percent higher on December 24, the last trading day of the week.

The positive mood in global peers amid Brexit deal hopes and the government plan to vaccinate frontline health workers in the first phase boosted investors' sentiment. Banking & financials and pharma stocks led the rally.

The Nifty opened higher at 13,672.15 and remained positive throughout the session to hit the day's high of 13,771.75 in late trade. The index closed 148.20 points, or 1.09 percent, higher at 13,749.30.

The index formed a bullish candle on the daily chart as the closing was higher than the opening levels, while for the week, there was Dragon Fly Doji formation on the weekly scale. During the truncated week, it fell 0.1 percent.

A Dragonfly Doji pattern signals indecision among traders but also points to the fact that the bulls managed to bring the index close to the opening level. The index has to clear the immediate hurdle of 13,777 (the record high level touched in December) for the bullish sentiment to continue.

Experts said the Nifty50 has to cross its earlier record high of 13,777 to break the current consolidation.

For the time, traders would be better off booking profits and retaining a neutral stance in the next session, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

"The Nifty50 continued its positive bias as it managed a third consecutive positive close post-market mayhem witnessed on December 21. Albeit seeing robust recovery from the intra-week low of 13,131 levels, a Dragon Fly Doji on weekly charts is hinting at impending weakness as this kind of formations usually seen around potential turning points," Mohammad said.

Hence, some sort of consolidation or profit-booking in the next session can't be ruled out, though short-term weakness in the market would be confirmed below 13,626, he said.

If the bulls manage to push the index beyond 13,777, then the next target shall be 13,990, Mohammad said.

The equity market will remain closed on December 25 for Christmas.

India VIX finally fell dropped below 20-mark after rising sharply on December 21, closing at 19.96, down 2.60 percent from 20.49 levels.

"A cool-down in volatility from higher zones has given a support for a decent bounce back and now it has to hold below 19 zone to continue the bulls grip," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

On the options front, maximum Put open interest was seen at 13,000 followed by 13,500 strike, while maximum Call open interest was at 14,000 followed by 14,500 strike. Call writing was seen at 14,000 then 14,200 strike, while Put writing was seen at 13,700 then 13,600 strike.

The data suggests that the Nifty could see an immediate trading range of 13,500-14,000, which shifted higher from 13,200-13,750.

The Bank Nifty opened gap up above 30,000 at 30,071.65 and continued its northward journey to hit an intraday high of 30,545.85. The banking index settled the day with gains of 518.90 points or 1.74 percent at 30,402.20 and formed a bullish candle on the daily scale, while a long lower shadow candle on the weekly scale indicates that declines are being bought.

"The Bank Nifty has to continue to hold above 30,200 to witness an up move towards 31,000 and 31,200, while on the downside, support is seen at 30,000 and 29,800," Taparia said.

A positive setup was seen in Sun Pharma, Cadila Healthcare, Axis Bank, ICICI Prudential, Reliance Industries, Kotak Mahindra Bank, HDFC, Divis Labs and Cipla, while weakness was seen in PVR, Ramco Cements, Cummins India, Jindal Steel and Apollo Tyres, he added.