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Technical View: Nifty forms a hammer pattern, 11,908 vital to further correction

February 18
18:28 2020

The Nifty recouped substantial losses in the last hours of trade to close off the day’s low on February 18, as concerns mounted for global economy after Apple issued revenue warning and HSBC earnings missed expectations in a widening impact of coronavirus.

The index fell for the fourth consecutive session and closed below the psychological 12,000-mark, forming a bearish candle that resembled a hammer pattern on daily charts.

A hammer is a bullish reversal pattern, which occurs at the bottom of a trend. This pattern appears after or during a downtrend. It is a single candlestick pattern.

Experts say 11,908 would be a crucial support level to watch out for. If the index holds it, there could be a rally towards 12,160.

After opening lower at 12,028.25, the Nifty extended losses to touch an intraday low of 11,908.05 in the afternoon but the index recovered more than half of losses in the last couple of hours of trade amid short-covering. It closed 53.30 points lower at 11,992.50.

“The Nifty50 smartly recoiled from the intraday low of 11,908 levels, which depicted a hammer kind of formation. At this intraday low of 11,908 levels, the Nifty not only tested its 100-day exponential moving average (11,933) but also retraced 50 percent of its last leg of the rally from the lows of 11,614–12,246,” Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

“Moreover today’s fall below 11,990 appears to have culminated one corrective structure of a lower degree in the form of an expanded flat. Hence, 11,908 shall remain sacrosanct support for short-term traders going forward. Sustaining above the said level, a pullback towards 12,160 is eventually possible,” he said.

Strength in the Nifty would be confirmed on a close above the day’s bearish gap zone present between 12,030–12,037, Mohammad added.

In the next trading session, traders with a high-risk appetite can go long if the Nifty opens on a bearish note, preferably around 11,950, but with a stoploss below 11,900, he said.

If the Nifty closes below 11,900 in the next couple of sessions, then corrective swing shall get extended into the 11,783–11,749 zone, he added.

India VIX moved up marginally by 0.62 percent to 14.51 levels.

Options data indicates that the trading range for the Nifty shifted lower to 11,900-12,250 from 12,000-12,300.

On the options front, maximum Put open interest was seen at 12,000 followed by 11,800 strike while maximum Call open interest was at 12,200 followed by 12,300 strike.

Call writing was mainly seen at 12,200 followed by 12,100 strike while Put unwinding was seen at immediate strike with minor Put writing at 11,900 strike.

The Bank Nifty continued to make lower highs, lower lows for a third consecutive session. The banking index saw a sharp correction in the first half of the session. However, it took support around the upper line of the Channel pattern and rebounded piercingly in the later half to form a hammer candle on the daily scale. The index closed at 30,562.50, down 0.39 percent.

“Formation of mentioned candlestick pattern around the support zone is a sign of relief for the bulls. Now, if Bank Nifty manages to cross 30,700 decisively, then we may an upmove towards 31,000 then 31,350 levels. While strong support remains intact at 30,100–30,200 zone,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

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