Technical View: Nifty forms Doji candle, expect consolidation with negative bias next week

The Nifty50 scaled another high on June 11, as the steady drop in daily COVID cases fuelled hopes of a quick rollback of restrictions and opening up of the economy boosted sentiment.

IT, metals, pharma, and select auto stocks supported the market. Meanwhile, the BSE Sensex surpassed its previous record high today.

The index formed Doji pattern on the daily charts as the closing was near the opening level. A Doji candle indicates indecisiveness among the bulls and the bears and also shows that bounces were being sold in the absence of follow-up buying interest.

The index gained 0.8 percent during the week and formed a small bullish candle. It continued its higher highs-higher low formation on a weekly scale for the sixth week.

India VIX fell by 5.98 percent from 15 to 14.10 levels, the lowest level since February 20, 2020. "Falling VIX could continue to keep a buy on decline strategy in the market," said Chandan Taparia of Motilal Oswal.

Given the consistent rally in equity markets for four consecutive weeks, experts turned cautious and expect the consolidation in coming sessions.

For the time, traders should remain neutral on the long side, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in said. Intraday traders can short below 15,749 and look for a target of 15,600 levels.

The Nifty opened higher at 15,796.45 and hit an intraday record high of 15,835.55 in the morning followed by volatility but remained in the positive terrain throughout the session. The index ended at a record closing high of 15,799.40, up 61.60 points.

"Albeit Nifty50 continued its gains into the fourth consecutive week, an indecisive Doji formation on daily the chart accompanied with narrower trading range with 266 points for the entire week is hinting at weakening momentum," Mohammad said.

Moreover, "certain technical oscillators on weekly charts appear to be overheated on the upside with overbought readings, whereas Relative Strength Index on daily charts registered a possible negative divergence formation as it failed to get past previous top unlike price chart," he said.

Hence, from current levels ideal trade set up for the week ahead should be sideways consolidation with a negative bias, he said.

According to him, if the bulls manage to push the index beyond 15,835, the rally may expand towards 15,950 – 16,000 but its sustainability will remain questionable.

If the Nifty slips below 15,749, its initial target on the downsides shall be towards 15,566, he said.

On the option front, maximum Put open interest was seen at 15,000 followed by 15,500 strike, while maximum Call open interest was seen at 16,000 followed by 16,100 strike. Call writing was seen at 15,800 and 16,100 strikes, while Put writing was seen at 15,500 then 15,709 strike.

The options data suggests an immediate trading range of 15,500 to 16,000.

The Bank Nifty opened positive at 35,324.65 but moved in the southward direction in the first half of the session. The latter part of the day saw rangebound movement and finally, it closed the day with losses of 83.80 points at 35,047.40.

The index formed a bearish candle on the daily as well as on the weekly scale as supply pressure was seen at higher zones. "Now it has to hold above 35,000 to witness an upmove towards 35,500 and 35,750 levels, while on the downside, support is seen at 34,750 and 34,500 levels," said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.

On the stock front, a bullish setup was seen in SAIL, Aurobindo Pharma, Tata Steel, Coal India, Jindal Steel & Power, Ashok Leyland, JSW Steel, Mahanagar Gas, Dr Reddy's Labs, Glenmark Pharma, Cadila Healthcare, TCS and Infosys. Weakness was seen in Container Corporation, Canara Bank, UltraTech Cement, Voltas and L&T, Taparia said.