Technical View: Nifty forms #39;Hanging Man#39; pattern; 10,800 crucial for bulls for further uptrend to continue

July 09
18:29 2018

The Nifty50 which started off the week on a positive note maintained uptrend throughout the session and managed to hold on to 10,850 levels at close on Monday, backed by positive global cues.

The index made a bullish candle which looked like a ‘Hanging Man’ kind of pattern.

A Hanging Man is a bearish reversal candlestick pattern which is usually formed at the end of an uptrend or at the top (264-point rally from its recent low of 10,589.10 recorded on June 28). In a perfect ‘Hanging Man’ pattern either there will be a small upper shadow or no upper shadow at all, a small body and long lower shadow.

The Nifty50, which opened at 10,838.30 jumped to hit an intraday high of 10,860.35, before closing 80.20 points higher at 10,852.90.

The index needs to hold 10,800 levels in coming sessions for further upside, but if it breaks then there could be selling pressure, experts said.

“Albeit Nifty50 registered a breakout above its downsloping trendline which is in progress from the highs of 11,171, it has signed off the day with a Hanging Man kind of formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

Hence, in next session if it slips below 10,800 levels then it can come under selling pressure, he said. “However, as multiple technical parameters are slowly tilting in favour of bulls with a fresh buy signal on daily MACD chart such a dip if any shall be considered only as a buying opportunity.”

He said even wave counts are still pointing towards the possibility of a minor dip, as long as Nifty50 traders below 10,893 levels, to culminate the corrective structure in the form of a contracting triangle with a higher bottom somewhere above 10,557 levels.

Such a pattern will be eventually followed by a big breakout opening the doors for retest of life time highs placed around 11,171, he added.

In the absence of such a dip a close above 10,893 shall act as a confirmation for the end of correction and one can safely presume that Nifty50 is in a fresh leg of upswing, Mazhar Mohammad said.

India VIX fell 0.68 percent to 12.36 levels. VIX has been falling down from last five trading sessions and lower volatility indicates bullish stance of market till it remains below 13.50 zones.

On the option front, maximum Put open interest (OI) was seen at 10,600 followed by 10,700 strike while maximum Call OI was seen at 11,000 followed by 10,800 strike. Significant Put writing was seen at 10,800 and 10,700 strikes while Call writing was seen at 11,000 and 11,100 strike.

Option band signifies an immediate trading range in between 10,720 to 10,929 zones, experts said.

“Nifty index opened gap up and witnessed sustain buying interest till the end of session towards 10,860 zones. It finally surpassed its falling supply trend line which is formed by connecting swing highs of 11,171, 10,929, 10,837 and 10,816 levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.

Now till it holds above 10,777 it could extend its gains towards 10,888 and then 10,929 while on the downside supports are seen at 10,770 and then 10,720 levels, he feels.

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