Technical View: Nifty forms hammer candle on weekly scale, consolidation likely with support at 10,900
The Nifty recouped losses in afternoon trade to close marginally higher amid volatility on August 16 and formed the Doji pattern on the daily scale. Banks and auto supported the market, but gains were capped by technology, metals and HDFC Group stocks. Global cues were also supportive.
The index continued to gain for second consecutive session and closed 18.40 points higher at 11,047.80. For the week, it lost more than half a percent and formed a hammer pattern.
The hammer is a bullish reversal pattern formed after a decline. It 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 buying is visible at lower levels, while at the same time, follow-up is missing at upper band of the falling channel, which means the index may consolidate with near-term support at 10,900, experts feel.
“This kind of long lower shadow of last two sessions with positive closes is suggesting that Nifty is in for a consolidation phase with a near term bottom in place around 10,900 levels,” Mazhar Mohammad, Chief Strategist, Technical Research and Trading Advisory, Chartviewindia.in, told Moneycontrol.
As long as the index sustained above the said low, a breakout above the 28-day old descending channel could be expected, which was in progress from July highs of 11,981 levels, he said.
“On such a breakout, a bigger target placed around 11,480 shall open up. However, in between, critical resistance for the index is placed in the zone of 11,145–11,180 levels and bulls need to clear this critical hurdle to gain upper hand. This optimistic outlook shall get negated if Nifty fails to defend 10,900 on closing basis,” Mohammad added.
India VIX moved up by 1.76 percent to 16.64 level.
On the options front, maximum put open interest is at 11,000 followed by 10,700 strike, while maximum call open interest is at 11,000 followed by 11,500 strike. Minor call writing is at 11,200 strike, while put writing is at 11,000 then 10,500 strike.
Option data suggests that the Nifty could trade in a range of 10,800 to 11,200 levels.
The Bank Nifty continued to consolidate in broader trading range in between 27,550 and 28,500 zones in the last seven trading sessions. The index closed 197.80 points higher at 28,217 and formed a bullish candle on the daily scale.
“The index formed hammer candle on the weekly scale, which suggests dips are being bought into but it is facing hurdle near the upper band of the trading range. Now it needs to hold and sustain above 28,200 levels to witness a bounce towards 28,500 then 28,750 zones, while on the downside supports are seen at 28,000 then 27,750 levels,” Chandan Taparia, Associate Vice President, Analyst-Derivatives, at Motilal Oswal Financial Services said.
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