On Friday Nifty 50 Manage to close well above the 7500 mark though the most part of the week was in the high volatile days. Last week Nifty has formed Doji pattern in the candlestick. Dojo was one of the indecisive pattern, this week’s close with big candle body gives clear direction and confidence in the market. With this positive close, Nifty 50 creates Morning Doji Start pattern in the weekly candlestick chart. The Morning Doji Star in one the reliable pattern when it forms in the down trend.
On a weekly basis Nifty has closed with 15 points down. In the weekly candlestick chart, Nifty has formed long shadow with thin body doji. Typically doji means the indecisiveness in the direction. Doji in the bottom can be seen as trend reversal. It has high posibility that current down trend may reverse.
In the year 2015, it was Small & Midcap companies who outperformed the Blue chip companies from Nifty 50 shares. The same happened even with mutual fund companies, where the return from Small & Midcap based funds have outperformed Index based funds.
The Nifty 50 index has closed the year 2015 with negative return of -3.10%. However for the same period Nifty Next 50 and the Nifty Midcap 50 index have given positive return of 9.72% and 3.72% respectively.
Things have changed over the last two weeks trading in 2016. The Small and Midcap companies are going down more than blue chip companies. Year to date, Nifty has given the negative return of 7.69% where as the Small and Midcap index have given negative return of 10.50% & 14.96% respectively. There is a shift in sentiment where the sellers are trying to take money out from profitable trades.
On Friday Nifty 50 have formed indecisive pattern in the Candlestick chart. The entire candle was within the previous day’s candle body. It had very small lower and upper shadow. Nifty is still trading below the Island created on Jan 7. The Island level of 7706 may act like a resistance for short term.
Nifty also breaks the multi-year trend line in the logarithmic chart. The trend line from 2008 bottom is current at 7595. Nifty is just closed above that level. It is also crucial to watch for those levels.
Dr.Reddy’s Laboratories Ltd (NSE:DRREDDY) is one of the heavily beaten down stocks in the turmoil. In just three months time, the stock went down from 52 weeks high of 4386 levels to 52 weeks low of 2750. Over the last three month the stock was continuously making lower low, but the last week was different for Dr. Reddy.
Shares of ITC plunged over 7% today after government’s appointed panel recommended a steep 40% tax on tobacco products triggering a sell off in cigarette makers. In the candlestick chart, ITC has formed big red color candle with huge volume of 33.9 Million shares. In the near term, the stock has support in the range of 300-310, breaking which will take the stock further.
Future & Option Analysis
Marico Limited has been continuously adding huge number of shares in the December series futures. Over the eight calendar days, the share has added 44,52,500 shares in the open interest. On December 10th, the stock was having 15,13,200 shares but as of yesterday it has 59,65,700 shares in the open interest. The stock price is also steadily moving up. During the same period, the stock has gained 30 rupees or over 7%.
When the market has closed near flat and the current series future premium goes up a bit, there are million shares added in the slightly out of money 7,900 & 8,000 December series call options. The calls have healthy time value premium of 77.50 and 43.50 respectively, because we still have 24 calendar days for call expiry.
Nifty has ended the day by going down by 7.45 points or 0.09%. It is typical flat trading session, there is nothing to talk about it. There are lot of stock specific actions happened. The indecisive doji pattern from Candlestick chart is raising concerns about ability to hold the upper range of resistance levels. Following set of shares have raised in Price and increased the future open interest in the current December series. The raise in the price & the open interest can be considered as Long Build Up.
On Friday, lot of shares witnessed Short Covering in the Open Interest, out of that Larsen & Toubro Limited, HDFC Bank Ltd, IDFC Ltd & Bank of India have made remarkable impact in the future’s open interest.
After Friday’s sharp rally, Axis Bank went on to create Long Build Up in the derivative segment. The Current month’s (December series) future has added 3,325 lots or 33,25,000 shares in the open interest which is 8.88% rise in the open interest. In the spot, Axis Bank has closed at 471.10, up by 5.8 or 1.25%.