Technical View: Nifty forms Hammer pattern on weekly scale, bulls need to defend 8,968 next week
The Nifty50 traded lower for the most part of the session on May 22 as the surprise repo rate cut of 40 bps by the RBI failed to revive sentiment. Banking & financials triggered the sell-off, while negative global cues amid US-China tensions added fuel to the fire.
The index, after defending the psychologically important 9,000-mark, closed below 9,050 to form a Doji pattern on daily charts and a Hammer formation on the weekly scale after falling 1.2 percent for the week.
A Doji candle indicates indecisiveness among the bulls and the bears, as the index closed near the opening levels and bounce was being sold in the absence of follow-up buying interest.
The 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 signifies that the stock tested its support, where demand was located and then bounced back.
The 50-share NSE benchmark index has to defend the day’s low of 8,968 in the coming week, which can lift the momentum, experts say.
The Nifty50 opened lower at 9,067.90 but gained momentum to hit an intraday high of 9,149.60. However, after the RBI move in the morning, the index corrected sharply and traded lower for rest of the session to hit the day’s low of 8,968.55. It showed some recovery in the late trade to close at 9,039.25, down 67 points.
“The Nifty50 registered an indecisive Doji candle before signing off the volatile session ahead of the long weekend, whereas a Hammer formation was registered on weekly charts as the Nifty witnessed a decent recovery from the intra-week low of 8,806 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
“Hence, in next trading session it looks inevitable for the index to sustain above 8,968 levels to prevent further damage in the near term, as a breach of the said level can eventually drag it down towards 8,800 levels.”
In case the bulls manage to defend 8,968 with a strong close above 9,100 then they can make one more attempt to break out from the consolidation range present between 9,160 and 8,800, he said. On such a breakout, an upswing can be expected to resume, with initial targets placed around 9,350.
Considering indecisive formations and volatile nature of the last two trading sessions, Mohammad advised traders to wait for signs of strength before creating long positions. Intraday shorting can be considered below 8,968 levels for modest targets placed in the 8,875 – 8,850 zone with a stoploss above intraday high.
On monthly options front, maximum Call open interest was at 10,000 then 9,500 strike while maximum Put open interest was at 9,000 then 8,500 strike. Meaningful Put writing was seen at 8,800 followed by 8,600 strike whereas Call writing was seen at 9,000 followed by 9,500 strike.
The options data indicates an immediate trading range for the Nifty at 8,800 to 9,300 levels, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.
India VIX moved down by 1.85 percent to 32.38 levels.
The Bank Nifty failed to hold its crucial support of 17,400 and slipped towards 17,100. It underperformed the benchmark index and wiped out nearly 700 points from its intraday high to close near 17,250 levels.
The index settled at 17,278.90, down 456.20 points, and lost 8.3 percent for the week, forming a bearish candle on the daily and the weekly scale that point to a complete dominance by the bears.
“Now till it holds below 18,000 levels, selling pressure is likely to continue to witness further decline towards 17,000 then 16,500-16,300 zone while on the upside hurdle is seen at 18,250 then 18,500 levels,” said Taparia.
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