Technical View: Nifty forms #39;Hammer#39; like candle; momentum seen only after 11,500

September 05
18:29 2018

The Nifty50 after opening lower extended losses as the day progressed after the rupee hit record low of 71.96 a dollar intraday. But as the rupee showed smart recovery from day’s low, the index managed to trim losses in the last hour of trade to close above 11,450 levels on Wednesday.

The Nifty50 hold on to its crucial support placed at 11,400 levels and made a bearish candle which looked like a ‘Hammer’ like pattern on daily charts.

A Hammer which is a bullish reversal pattern is formed after a decline while a Hanging Man is a bearish reversal pattern. A Hammer consist of no upper shadow, a small body, and long lower shadow.

The long lower shadow of the Hammer signifies that it tested its support where demand was located and then bounced back.

The Nifty50 opened at 11,514.85 and managed to hit an intraday high of 11,542.65 amid volatility in the initial few minutes of trade, followed by gradual fall which dragged the index below 11,400. The index hit an intraday low of 11,393.85 but started recouping some of the losses in last hour of trade and closed 43.30 points lower at 11,477. It recovered 83 points from day’s low.

The short covering or value buying seen in the last hour of trade may continue in the coming session but that may not sustain for long as short term structure of the market is still weak, experts said.

“Nifty50 registered a Hammer formation as it recouped major part of intraday losses from the day’s low of 11,393 levels suggesting some sort of short covering or value buying post 3-day relentless fall. Usually this kind of formations will have bullish connotations provided they attract follow through buying in next trading session,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said, however, short term strength in the indices shall be presumed only on a close above 11,575 in the next session. “Nevertheless as selling is severe in last three sessions any fall towards 11,400 in the first hour of next session may provide an intraday opportunity to create fresh longs for the day with a stop below 11,387.”

On the other hand if the index fails to stabilise above 11,393 levels then eventually it may get dragged down towards 11,300 kind of kind of levels, according to him.

Hence, conservative traders are advised to wait for more signs of stability and strength before going long, he advised.

Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas said overall technical setup suggests that the short term trend is in favour of the bears. “So any minor degree bounce should be used as a selling opportunity. 11,530-11,550 shall be the key hurdle zone where the bears can open next round of fire.”

India VIX fell by 1.03 percent to 13.64. Pause in the VIX after the sharp spurt of 10 percent indicates some consolidation could be seen with support zones.

On option front, maximum Put open interest (OI) is at 11,400 followed by 11,500 strike while maximum Call OI is at 11,800 then 11,600 and 12,000 strikes. Meaningful Call writing was seen at 11,600 followed by 11,500 strikes whereas Put writing was seen at 11,400 strike.

“The index formed a Hammer kind of candle on daily scale which suggests that supports are seen at lower zones while immediate trend is on lower top – lower bottom which is dragging it to lower levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.

He said now it needs to cross and holds above 11,500 zones to witness an up move towards 11,550 then 11,620 zone while on the downside support is seen at 11,420-11,400 zones.

Bank Nifty fell down sharply towards 27,136 mark but managed to recover from lows and formed a Long Legged Doji candle indicates tug of war after the recent decline of 1,250 points from its top of 28,338 marks.

Now it has to hold above 27,250 to witness a bounce towards 27,440 then 27,750 while on the downside support at 27,165 then 27,000 zones, Taparia said.

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