Technical View: Nifty forms bearish candle amid consolidation; tread with caution

December 06
05:28 2018

The market started off last month of the calendar year on a flat note Monday as traders maintained cautious stance ahead of key domestic events like RBI monetary policy and state elections results.

The Nifty50 continued to consolidate for the second consecutive session after a 400-point rally, forming small bearish candle which resembles a Hanging Man kind of pattern on the daily charts.

A Hanging Man is a bearish reversal candlestick pattern which is usually formed at the end of an uptrend or at the top. 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 Nifty continued to face resistance around 10,900 levels but failed to hold the same. Once it closes above the same levels, then 11,000 could be the next hurdle, experts said.

The index opened sharply higher at 10,930.70 and hit an intraday high of 10,941.20 in morning itself, but gradually erased gains in afternoon to hit day’s low 10,845.35 followed by rangebound trade. It closed 7 points higher at 10,883.80.

“Nifty50 signed off the session with a Hanging Man kind of formation pointing towards indecisiveness of market participants,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said this kind of muted response on Indian bourses to strong global cues is clearly suggesting that Indian markets are waiting for domestic headwinds, in the form of monetary policy or state election result etc, to get cleared.

Hence, markets will continue to remain directionless for next couple of days before taking cues from the said events as short term trends are bound to get influenced by such news flows, he added.

Mazhar said technically speaking sell signals are registered on momentum oscillators of lower time frame charts suggesting caution in near term. “In next session if Nifty consistently trades below 10,840 levels for atleast one hour then on intraday basis selling pressure can be witnessed which should eventually drag down the indices towards its 200-day moving average whose value is placed around 10,746 levels.”

On the upsides a strong push beyond 10,950 may take the indices towards 11,069 levels, according to him. “However, at this juncture it looks prudent for traders to adopt a neutral stance for couple of days and are advised to focus on extremely stock specific opportunities with fresh breakouts.”

India VIX fell by 5.5 percent to 18.11 levels. On the options front, maximum Call open interest was seen at the 11,000 strike, followed by 10,900 and 11,100 strikes while maximum Put open interest was seen at the 10,500 strike followed by 11,000 and 10,700 strikes.

Meaningful Call writing was seen at 11,100 followed by 11,000 strike and 11,300 strikes. Put writing was seen at the strike price of 10,500 followed by 11,000 and 10,900 strikes.

Jayant Manglik, President, Religare Broking also said volatility is likely to remain high ahead of important events and data.

He advised keeping cautiously optimistic approach and focusing on stock selection. “In case of any decline, Nifty would find support around 10,750 and the next major hurdle is at 11,100,” he said.

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