Tech view: Nifty forms spinning top; deploy buy-on-dips strategy

ETMarkets.com: The Nifty50 threw up a ‘Spinning Top’ kind of a pattern on the daily candlestick charts on Monday after forming a ‘Three White Soldiers’ pattern, which clearly shows that the market is likely to consolidate in the near term.

A ‘Spinning Top’ pattern is formed when the real body is small but it has the distinctive upper as well as lower shadows, which suggest a wide range of price movements happened through the trading day.

The Nifty50 rose to an intraday high of 8,200, which made the long upper shadow but lost momentum towards close. The Nifty50 opened at 8,166 and slipped to an intraday low of 8,150, which made the long lower shadow. The index closed at 8,178 on Monday.

This candle is often seen as a neutral pattern and should be studied with other indicators and patterns on the daily as well as weekly charts. The market is likely to consolidate at current levels and the momentum will start picking up once Nifty50 breaks above 8,250, experts said.



“The Nifty50 formed ‘Spinning Top’ candlestick pattern in Monday’s session, which is indicative of a situation where neither the buyers nor the sellers have won for that time period, as the market closed relatively unchanged from where it had opened,” Rohit Gadia, founder & CEO, CapitalVia Global Research, told ETMarkets.com.

“This pattern suggests a break above the 8,250 level will bring in momentum on the upside. On the other hand, a move below the 8,170 level may cause the upside momentum to drop and trigger profit booking,” he said.

Technically, the market still remains in a medium-term uptrend with most cues pointing towards north, but there will be a pause before the market regains strength and starts rallying to a fresh high.

Monday’s narrow range of consolidation accompanied by an indecisive pattern suggests the short-term momentum may be nearing its peak, thereby paving the way for a phase of corrective consolidation.

“The sharp rally recoded in last five sessions from the lows of 7,715 resulted in an abnormal deviation between the short-term averages and the actual price. This phenomenon shall result in mean reversion, thereby reducing the gap between the actual price of the index and its average price,” Mazhar Mohammad, Chief Strategist - Technical Research & Trading Advisory, Chartviewindia.in, told ETMarkets.com.

“The momentum oscillators on the shorter timeframe charts are trading at extremely overbought levels, warranting a correction or consolidation in the near term,” he said.

Mohammad said the next 2-3 sessions may not be favourable for intraday bulls, and short-term traders should wait for a correction or a pause before initiating long positions.