Nifty50 on Wednesday saw a gap-down start, but managed to recoup most of the losses towards the end. The index formed an indecisive ‘Doji’ formation on the daily chart for yet another session. The index has traded broadly within 300 points in last six sessions. Analysts say the market lacks direction now.
Rajesh Palviya of Axis Securities said the index formed a lower high-low formation, which is a negative sign.
“Since three consecutive sessions, Nifty50 continued to consolidate in the 11,370-11,240 range, which signalled lack of strength on either side. For Thursday, any violation of the 11,240 level may cause weakness and make Nifty drift towards the 11,200-11,160 zone. Intraday resistance is placed in the 11,320-11,340 zone. Once Nifty manages to break out above 11,340, it may scale up towards the 11,450-11,500 zone in the short term.”
For the day, Nifty closed at 11,308, down 14.10 points or 0.12 per cent.
Nagaraj Shetti, Technical Research Analyst at HDFC Securities, said a small body with a lower shadow on Nifty’s daily chart suggested the formation of High Wave-type pattern and indicated that the bulls are holding their defence.
“This choppy movement below the hurdle of the previous swing high could eventually result in the index retesting its recent swing high at 11,373,” he said.
On the face of it, Nifty seems to be in a very dull and dry trading climate. The index has seen a series of small “Doji” candles and is struggling to move above the threshold at 11,350, said independent analysts Manish Shah.
“If we drop down a time frame, we notice a consolidation below the resistance at 11,350. It is more of a cup-and-handle situation on the lower time frame chart. On the price breaks above the lip, it can signal continuation of the trend. Meanwhile, Nifty50 made a lower high on Wednesday, which is a bearish development. The principal of confirmation says when in doubt wait for a confirmation,” he said.
A Cup and Handle is a chart pattern in which the prices drop and rise back up to the original value, followed by a small decline. As the name suggests, there are two parts to this pattern – one is a U-shaped cup and another one is a small handle. A cup usually forms after an advance move, and it looks like a ‘Rounding Bottom’. After the high is formed, there is a pullback, which ideally forms a ‘Handle’ that shows a final pullback before the big breakout.
Chandan Taparia of Motilal Oswal Securities advised traders to opt for ‘buy on dips’ strategy. “Nifty50 has to continue to hold above 11,200 to witness an up-move towards 11,400 and then 11,500 levels. Downside support exists at 11,200 and 11,150 levels,” he said.