Technical View - October 8, 2020 - Mr. Nagaraj Shetti, Technical Research Analyst, HDFC Securities
The upside momentum continued in the market for the sixth consecutive sessions on Thursday and Nifty closed the day higher by 95 points amidst a volatility. A small negative candle was formed with minor upper and lower shadow. Technically, this market action could indicate a formation of doji type pattern at the swing high of 11905. This could be crucial for bulls to sustain the highs.
Normally, a formation of doji pattern after a reasonable upmove could be considered as a reversal pattern (top reversal) post confirmation. Hence, any weakness in the next session is expected to open profit booking in the market from the highs.
Today's upmove and the formation of new swing high seems to have negated the previous reversal pattern of bearish engulfing (later Aug 20) as per daily and weekly timeframe chart, as Nifty closed above 11794 on Thursday. If Nifty closes above 11850 by Friday, then one may consider such action as a bullish pattern and more upside could open.
The negative divergence pattern as per weekly 14 period RSI has started to form and the confirmation of this pattern could mean an overbought nature for the market. Though, Nifty moved up consistently in the last 4-5 sessions, the overall market breadth was not in line with bench mark index. The broad market indices like midcap and small cap segments have failed to show any meaningful gains.
Conclusion: The short term trend of Nifty continues to be positive. The formation of doji pattern, development of negative divergence and deteriorating market breadth at highs are all indicating a possibility of profit booking from the highs. A confirmation by the way of reasonable weakness is likely to change the trend. The next overhead resistance to be watched at 12000 levels and immediate support is placed at 11740.