Technical View: Nifty forms #39;Hanging Man#39; pattern, tread with caution

March 13
18:29 2019

The Nifty50 on March 13 managed to stage a rally in the second half after initial volatility and closed at a fresh six-month high, driven by banking  and financials.

The index closed a tad below 11,350 levels and formed a ‘Hanging Man’ kind of pattern on the daily charts.

Usually this pattern appears around short term turning points. So traders should be cautious before taking big positions in coming sessions, experts said.

A Hanging Man is a bearish reversal candlestick pattern which is usually formed at the end of an uptrend or at the top (around 550-point rally from its recent low of 10,792 recorded on February 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 after opening higher at 11,326.20 turned volatile and hit an intraday low of 11,276.60, but managed to gain strength in second half and hit a day’s high of 11,352.30. The index closed at 11,341.70, up 40.50 points.

“It appears to be the day of consolidation on the bourses as Nifty50 remained in a narrow range of around 75 points for larger part of the trading session before signing off the day with a Hanging Man formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said in next trading session if Nifty50 slips below 11,276 levels then the index can come under selling pressure on intraday basis.

If this downswing materialises, then initial targets can be placed in the zone of 11,227 – 11,180 levels and sustaining above the said support is critical for the current upswing to remain intact, he added.

Though on the upsides initial targets remain around 11,408 kinds of levels, considering the fact that market has reached overbought levels accompanied with negative formations traders should give priority to book profits in the next session as holding a position may not present a favorable risk reward ratio, Mazhar said.

Bank Nifty opened positive and gradually extended its gains to hit a fresh life-time high of 28,927 levels. The index closed 440.60 points higher at 28,884.30.

“Now it has to continue to hold above 28,500 zone to extend its momentum towards new life time high of 29,000 then 29,250 zone while on the downside major support exists at 28,388 then 28,000 levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, told Moneycontrol.

India VIX moved up by 1.18 percent to 15.27 levels. VIX closed higher after the declines of last seven-eight trading sessions but overall lower volatility is giving comfort to bulls.

On the options front, maximum Put open interest (OI) is at 11,000 followed by 10,700 strike while maximum Call OI is at 11,500 followed by 11,400 strike.

Put writing is seen at 11300 followed by 11200 strike while Call writing is seen at 11500 followed by 11600 strike. Option band signifies a shift in higher trading range in between 11150 to 11450 zones.

“On immediate basis, the index has to continue to hold above 11,280 to extend its upmove towards 11,400-11,450, Taparia said.

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