Technical View: Nifty forms Shooting Star pattern, sideways trade to continue

As trade seems to be sideways, Mazhar Mohammad of Chartviewindia.in advises traders to remain neutral on the index.

The Nifty50 traded higher for the third consecutive day but remained in consolidative mode on October 20, with profit-booking at higher levels in the last couple of hours of trade forcing the index off the day's high.

After opening lower at 11,861, the Nifty immediately gained strength to hit an intraday high of 11,949.25. It saw some profit-booking at higher levels in the last hours and ended the day at 11,896.80, up 23.80 points.

The index failed to hold on to 11,900-mark and formed a small-bodied bullish candle that resembled a Shooting Star kind of pattern on the daily charts.

A 'Shooting Star' pattern is formed when the index comes under selling pressure as traders start booking profits at higher levels. The pattern is usually formed in an uptrend and is treated as a reversal pattern, which requires confirmation that the trend will get reversed in the near future.

A strong uptrend is unlikely in the coming days unless the index closes above 12,025, experts said.

As trade seems to be sideways, traders should remain neutral on the index, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

"Despite positive price action for the day, Nifty50 appears to have witnessed intraday profit booking from the exact resistance point of 11,950 levels, which depicted a Shooting Star kind of formation with long upper shadow but with relatively lower candle body," Mohammad said.

Hence, he feels in the next trading session if the index slips below 11,837 then it can attract intraday selling pressure and can make an attempt to bridge the bullish gap present between 11,820 – 11,789 levels registered on October 19.

Contrary to this if the bulls manage to defend 11,837, then the trade for the next session can be sideways with positive bias with the likelihood of retesting the recent corrective swing high of 12,025 levels, according to him.

However, the current rally from the lows of 11,661 is still looking like a counter-trend move and hence outright bullish opinion shall not be formed unless the Nifty registers a strong close above 12,025 levels, he said.

India VIX moved up by 3.99 percent from 21.82 to 22.69 levels. Chandan Taparia of Motilal Oswal feels VIX needs to cool down below 19 zones for market stability but volatility could spike ahead of US elections.

On the options front, maximum Put open interest was at 10,500 followed by 11,000 strike, while maximum Call open interest was at 12,500 followed by 12,000 strike. Call writing was seen at 12,000 then 12,500 strike while Put writing was seen at 11,500 then 11,600 strike.

The abovementioned option data indicated an immediate trading range for the Nifty at 11,750 to 12,000 levels.

The Bank Nifty opened negative at 24,117.35 but managed to hold 24,000- mark and headed higher to hit an intraday high of 24,410.90.

The index has been making higher lows on the weekly scale and holding well above the previous hurdle of 24,000-24,200. It closed 45.05 points higher at 24,311.80 and formed a bullish candle on the daily scale.

"The index has been making higher highs-higher lows from the last three trading sessions. Now it has to hold above 24,000 to witness an upmove towards 24,750 then 25,000 while on the downside support exists at 23,750 then 23,500," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in Asian Paints, Dabur, HCL Technologies, Zee Entertainment, Bharti Infratel, Tech Mahindra, HDFC Bank, L&T, JSW Steel, Wipro and Infosys while weakness was seen in UPL, Reliance Industries, Hindalco, Kotak Mahindra Bank and ICICI Bank, he added.