Nifty closed strong above 9800, but failed to sustain 9900, which resulted into formation of Shooting Star kind of pattern on daily chart.
Nifty climbed to 9726 at open and gradually extended rally to hit an intraday high of 9931 in afternoon, but witnessed some profit booking at higher level in last couple of hours of trade.
A 'Shooting Star' pattern is formed when the index comes under selling pressure as traders start booking profits at higher levels. This pattern is usually formed in an uptrend and is treated as a reversal pattern, but it would require confirmation before we can conclude that the trend will get reversed in the near future.
Nifty rallied nearly 800 points, or 9 percent, in four sessions, which indicated that bulls may be in need of some breather.
Despite a strong gap up opening bulls appears to have chosen to take some profits at higher levels owing to which Nifty depicted a Shooting Star kind of formation with relatively longer upper shadow when compared to the body of the candle. Yet times these kind of formations pave the way for profit booking provided Nifty trades below 9706 level in next trading session.
In that scenario today's bullish gap present in the zone of 9706 /9598 level may act as a support if this rally has legs further in the upward direction.
55 day EMA which offered resistance on the way upside can now act as a support level whose value is placed around 9529 level. Hence, going forward a strong support may emerge in the zone of 9700/9529 kinds of level.
Counter Trend if bulls manages a close above 9931 level then next target shall be around 10159/10300 level.
All the sectoral indices ended in the green, while Smallcap and Midcap indices rose between 2-3 percent.
- Someshwar, Technical analyst, Equidius Research