Technical View: Nifty forms Hammer candlestick pattern, strength seen on close above 15,000


The Nifty fell 244 points intraday on March 15  but a recovery in late trade cut the losses by half, leading to a hammer kind of candlestick pattern on the daily chart. Higher whole price inflation and partial lockdown in some states weighed on sentiment.

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 signifies the stock bounced back after testing its support, where demand is located.

The Nifty opened higher at 15,048.40 but immediately succumbed to selling pressure to hit the day’s low of 14,745.85. The index managed to recover more than half of the losses in the last couple of hours of trade to close at 14,929.50, down 101.50 points.

If the recovery seen in the afternoon continues and the index closes above the 15,000-mark in the coming session, it could bring strength to the market, experts say.

Traders should not initiate buying on the Nifty in haste unless it closes above 15,000 levels, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia said. Intraday shorting can be considered below 14,850 for a modest target in the 14,750–14,700, he said.

The Nifty appears to have found some buying support as it neared its 50-day simple moving average, whose value is placed around 14,700 level, Mohammad said. “This smart recovery from the intraday low of 14,745 levels depicted a Hammer kind of formation with a longer lower shadow on candlestick charts,” he said.

Usually, this kind of formation has bullish connotations, provided a positive follow-through action is witnessed in the next trading session, Mohammad said.

“Hence, to retain the bullish stance, the Nifty needs to recover and rally in next session beyond 15,048 levels. In this regard, a close above 15,000 can be considered as an initial sign of strength and in such a scenario, the Nifty can eventually head into 15,250–15,300 levels,” he said.

But if the index fails to sustain above 15,000, it can lead to a retest of 50-day simple moving average.

India VIX fell by 2.22 percent from 21.70 to 21.22 levels.

On the options front, maximum Put open interest was seen at 14,000 followed by 14,500 strike, while maximum Call open interest was at 16,000 followed by 15,500 strike. Call writing was seen at 15,000 then 15,100 strike, while Put writing was seen at 14,500 then 14,100 strike.

The data indicates that a wider trading range for the Nifty could be 14,500 to 15,500, while an immediate range may be 14,800-15,200.

The Bank Nifty opened positive at 35,544.25 but failed to hold above 35,500 and drifted lower to hit an intraday low of 34,430.65. However, a smart recovery in the last hour helped the index close around 35,200 zone, with loss of 314.10 points at 35,182.60. It formed a Bearish Hammer candle on the daily scale with a long lower shadow.

“The index has to cross and hold above 35,500 to witness an upmove towards 36,000 and 36,500, while on the downside, support is seen at 34,750 then 34,500 levels,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

On stocks front, bullish setup was seen in Mindtree, SAIL, JSW Steel, Tech Mahindra, Tata Steel, Power Grid, BPCL, Mahanagar Gas, NMDC, Lupin, HCL Technologies, NTPC, REC, Apollo Hospitals and Voltas. Weakness was seen in Shriram Transport, Container Corporation, ICICI Prudential, Hero MotoCorp, Bajaj Auto, LIC Housing Finance, Mcdowell, Dr Reddy’s Labs, Reliance Industries and HDFC, he added.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.