Technical View: Nifty forms Hammer pattern; initiate longs with stop loss below 11,500

July 15
19:29 2019

Nifty after a positive start remained rangebound throughout the session and closed sharply higher on July 15, driven majorly by Infosys’ 7 percent on raising full-year guidance upwards.

The index despite positive close formed bearish candle (closing price is lower than opening price) that resembles a Hammer on daily charts.

Hammer is a bullish reversal pattern 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 pattern suggests if there is follow-through buying then Nifty could reclaim 50-day moving average of around 11,690, experts feel.

“Last five sessions of price behaviour appear to be slowly tilting the tide in favour of bulls as Nifty is consolidating around the demand line of its 18-month old ascending channel. Interestingly, even in today’s session it smartly bounced back after reaching close to the support placed around the said channel,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol

For time being traders are advised to initiate longs for an initial target of 11,690 with a stop below 11,500 on a closing basis, he added.

India VIX ended flat at 12.02. Lower VIX suggests consolidation is likely to continue in the near term.

For Nifty options, maximum Put open interest (OI) is at 11,300 followed by 11,500 strike while maximum Call OI is at 12,000 followed by 11,800 strike. Put writing is at 11,400 and 11,300 strike while minor Call unwinding is at the immediate strike price.

Experts feel Option data suggests a trading range between 11,400 and 11,800.

Bank Nifty failed to hold above 30,600 and relatively underperformed the benchmark Nifty index. The index closed 155.50 points lower at 30,445.95.

It formed a bearish candle on the daily scale and negated the formation of higher highs after three trading sessions.

“Now, it needs to hold above 30,600 to witness a bounce towards 30,850 while a hold below the same could drift it towards its major support of 30,250,” Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

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