NEW DELHI: The Nifty50 gained for second straight session on Tuesday, and sixth in last seven, to settle at a record high of 11,740. It ended up forming a indecisive Doji candle that resembled an 'Evening Star' formation on the daily chart.
This, along with an advance-decline ratio that was skewed towards the latter, warranted caution.
Evening Star is a three-candle pattern, where a large bullish candle is followed by a gap-up opening on the second day, which ends with a small-bodied candle due to the absence of followup buying. This usually leads to selling on Day 3.
“A small-bodied positive candle was formed at Niftys new high of 11,760 after a gap-up opening. Technically, this pattern should signal a state of confusion among investors at new highs. More often, such stalled patterns on the upside gap and at swing highs after a long bull candles result in the formation of crucial top reversal pattern of the Evening Star,” said Nagaraj Shetti of HDFC Securities.
Niftys short-term trend of continues to be upward, but the overall chart pattern suggests the possibility of weakness from the high of next one or two sessions, Shetti said.
Gaurav Ratnaparkhi of Sharekhan said the market breadth was negative and the index can take a pause now before stretching higher. “A consolidation is likely in the 117,50-11,700 range. Overall, a short-term target is placed at 11,840 on the upside with the potential to stretch higher,” he said.
Mazhar Mohammad of Chartviewindia advised traders to remain cautious and maintain a stop loss below 11,700 on a closing basis, as such a close can be an early sign of weakness for the near term.
In case the bulls chose to fuel further rally, then it can go up to 11,850 level. For the index to move higher towards 11,777-11,800 range, it needs to hold above 11,666, said Chandan Taparia of Motilal Oswal Securities. Medium-term support has shifted higher to 11,620, he noted.
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