Mumbai: Indo-Pak tensions, along with build-up of anxiety over the general elections and clamour around global growth concerns has culminated into a ‘Tri-Star’ formation on monthly technical charts which is expected to push the Indian equity markets out of the present trade range.
In market parlance, the ‘Tri-Star’ formation represents a technical pattern which generally culminates into reversal of a set trend. At present, Nifty50 has made this pattern on monthly charts.
In the past, a similar pattern was witnessed from August to November 2015 (four dojis instead of three). Post this pattern, the Nifty was pulled lower due to a sharp plunge in the Chinese markets and tensions between North Korea and South Korea.
Another instance of the pattern appeared between February and April 2004, ahead of the general elections in that year. In May, the Nifty sold off due to unexpected defeat of NDA government of that time.
Lately, the market sentiment has been impacted by heavy volatility due to corporate governance issues, liquidity crunch and default fears which have kept the market in a tight trading range.
According to senior market analysts, these factors have negated the positives like lower inflation, and relief measures from RBI as well as government and created a tri-star or three dojis pattern.
Currently, the Nifty shows three dojis in a sideways trend after a fall from the highs of 11,760 points.
“Global economic data appears to be a typical late cycle. This means many developed markets are either in a recession or close to one,” Sahil Kapoor, Chief Market Strategist-Research, Edelweiss Wealth Management.
“This global drag presents a burden on India’s growth as well. Add some apprehensions about what kind of government, majority or coalition, will India elect and you get an uncertain backdrop. Investors usually are fine with uncertain outcomes because they are always present.”
“But uncertainty which is systemic and tough be set into probabilities leads investors to wait and seek more clarity.”
According to Deepak Jasani, Head of Retail Research for HDFC Securities, “Three dojis are also known as Tristar Doji pattern. Normally this is an early signal of a sharp move or reversal. A break of the high or low of these three candles will signify a sharp breakout or breakdown.”
“In the present case these levels are 11,118 or 10,334 points. This pattern at the current juncture signifies uncertainty ahead of elections and also on growth concerns due to local and global factors.”
Last week, the broader NSE Nifty50 finished at 10,791.65, up just 67.25 points or 0.6 per cent from its previous week’s close.
“Oil’s pull back as well as China-US trade impasse has also been instrumental in keeping risk appetite on the check, ensuring that global cues gave scant support to bulls in attempts to shrug off the domestic troubles,” Anand James, Chief Market Strategist at Geojit.
“Tight trading ranges for extended period can mean only one thing, that they are about to be broken.”