Technical View: Nifty forms #39;Hammer#39; pattern; counter trend rally may extend to 11,479
The Nifty50 after gap up opening started correction in late morning deals, but managed to claw back in last couple of hours of trade on short covering on Wednesday after big fall in previous two consecutive sessions.
The index closed sharply higher on reports of Prime Minister may be held economic review meeting to consider fiscal or monetary measures during the weekend, and ahead of industrial output and CPI inflation data due later in the day.
The Nifty hold on to its crucial support placed at 11,300 levels and made a small bullish candle, which looked like a ‘Hammer’ kind of formation on daily charts, after two big bearish candles in previous two trading sessions.
A Hammer which is a bullish reversal pattern is formed after a decline. A Hammer consists 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 sharply higher at 11,340.10, but wiped out all its gains in late morning deals to hit an intraday low of 11,250.20. The index managed to recoup those losses in last couple of hours of trade to hit day’s high of 11,380.75 and closed 82.40 points higher at 11,369.90.
“Nifty50 registered a Hammer formation on candlestick charts as markets staged a decent recovery from day’s low of 11,250 levels perhaps owing to the short covering rally driven in anticipation of positive news flows on currency front by week end,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
However, technically speaking a pull back was due owing to sharp fall witnessed in last couple of trading sessions, he said.
Hence, according to him, sustaining above Wednesday’s low of 11,250 market can be expected to initially pull back towards 11,479 levels.
At this juncture, based on wave counts on lower time frame charts it is clearly looks like a counter trend rally which if materialises should have a best case scenario target of 11,658 on the upside before resuming the downswing again, he said.
Hence, he advised traders to position themselves to play for this counter trend rally with a stop below 11,250 levels.
India Volatility Index fell by 6.16 percent to 14.38.
On the options front, maximum call open interest (OI) of 44.55 lakh contracts was seen at the 11,800 strike price followed by 11,600 and 11,500 strikes while maximum put open interest of 44.78 lakh contracts was seen at the 11,400 strike price followed by 11,000 and 11,200 strikes.
Significant Call writing was seen at 11,400, 11,300 and 11,200 strikes while Put writing was seen at 11,200, 11,400 and 11,000 strikes.
“The index has formed a Hammer candlestick pattern on the daily chart, which is a bullish pattern. Going ahead, if the index overlaps with the swing low of 11,394 then there is a case for a deeper pullback,” Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas he said.
Nevertheless, overall short term trend continues to be down, he feels. “One needs to keep an eye on the pullback post which fresh short position can be created.”
On the other hand, today’s low of 11,250 shall be the key support with short term target at 11,160, he said.