Nifty forms a perfect Doji and an inside bar
As the Doji candle's upper shadow is longer than the lower shadow, the probability of closing negatively is higher
image for illustrative purpose
With the profit booking in the leading stocks, the benchmark indices closed lower after three days of the counter-trend rally. The Nifty closed at 16584.55 with 76.85 points or a 0.46 per cent loss. The Energy, Banks and Financial services indices closed lower by 0.95 per cent to 1.08 per cent. The Realty index is the top gainer with 2.01 per cent.
The Media and Metal indices were up by 1.5 per cent. The remaining indices closed with half a per cent on either side. The market breadth is also neutral as 1097 advances and 957 declines. About 35 stocks hit a new 52-week low, and 135 stocks traded in the upper circuit. Reliance, Tata Elxsi and Bharti Airtel were the top gainers Tuesday.
The Nifty has formed a perfect Doji candle and an inside bar. As Nifty failed to make a higher high candle, the bulls seemed to have tired after filling the 6th May gap. Though, the inside bar does not have any trend change implications without a confirmation candle for Wednesday. Doji candle represents indecisiveness.
In any case, if the Nifty closes negative or below 16500, the trend will reverse on the downside. As the Doji candle's upper shadow is longer than the lower shadow, the probability of closing negatively is higher. The Nifty has formed a box in a lower timeframe chart on the top and closed near the support.
A close below 16521 will give a confirmation to the bearish implications. The MACD indicates a weakness in the trend. The RSI has formed lower lows and lower highs, is an indication of negative bias. The other weaker signal is that the 20 DMA is still in the downtrend even after a big surging day.
On the positive side, if the Nifty closes above the 16696, it will test the 16915, which is 50 per cent retracement level of the prior trend. On Monday, it closed above the 38.2 per cent retracement level, it failed to sustain above. For now, wait for a decisive trending move to take the position on either side.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
