Technical View: Nifty forms Hanging Man pattern; traders can prefer profit booking
The Nifty50 after opening at fresh record high erased gains after first hour of trade but managed to recoup those losses and remained higher for major part of the session on Monday.
The index continued its positive momentum, forming Hanging Man kind of pattern on the daily candlestick charts which indicated that there could be some consolidation or correction going ahead but it requires some confirmation.
A Hanging Man is a bearish reversal candlestick pattern which is usually formed at the end of an uptrend or at the top (362-point rally from its recent low of 10,957.10 recorded on July 19). 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 after opening at fresh record high of 11,296.65 hit 10,300-mark for the first time but corrected after first hour of trade to hit day’s low of 11,261.45. The index managed to recoup those losses in late morning trade and hit a new intraday high of 11,328.10, before closing 41.10 points higher at 11,319.50.
“Albeit Nifty50 opened the week on a positive note by the end of the day it registered Hanging Man kind of formation which is usually seen around short term turning points,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
He said however, a confirmation in this regard is required which will occur once Nifty50 slips below 11,261 levels triggering weakness on candlestick charts. “Interestingly this kind of weak pattern is accompanied by overbought levels on oscillator charts suggesting some sort of pull back.
Besides current price of index on short term charts is trading at much higher levels than its short term average prices suggesting that rally is due for a corrective and consolidation phase, he feels. Hence, it looks prudent for traders to book profits in next session and remain on sidelines till market correct and consolidate for couple of trading sessions, he said.
On dips traders can initiate buying between the gap zone of 11,210–11,185 registered on last Friday, Mohammad advised.
India VIX moved up by 1.52 percent to 12.49. Overall lower volatility suggests bulls are holding the tight grip on the market, experts said.
On option front, maximum Put open interest (OI) was seen at 11,000 followed by 10,500 strike while maximum Call OI was at 11,500 followed by 11,400 strike. Put writing was seen at 11,200 and 11,300 strike whereas Call writing was seen at 11,400 followed by 11,600 strike.
The Nifty index has been making higher highs – higher lows from last seven trading sessions and even small decline is being bought in the market, Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities said.
Now it has to continue to hold above 11,250 zones to extend its move towards 11,350-11,400 zones while on the downside major support is seen at 11,200-11,171 zones, he added.
Bank Nifty made a new life time high of 27,873 mark and managed to hold above previous life time high of 27,652 zones.
It formed a Bullish Candle on daily scale and supports are gradually shifting higher. “Now it has to continue to hold above 27,650 zones to extend its move towards 28,000 then 28,250 zones while on the downside major support exists at 27,500-27,400 zones, Taparia said.