Technical View: Nifty forms Hanging Man pattern, experts say create long positions if index holds 15,900
The Nifty50 started the week on a strong note to close more than 100 points higher on August 2, as all sectoral indices ended in the green with auto and IT emerging as the big gainers.
The index opened more than 100 points up at 15,874.90 and remained in the range on the higher side. It touched an intraday high of 15,892.90 and low of 15,834.65, before ending the session at 15,885.20, up 122.20 points.
It formed a bullish candle that resembled a Hanging Man pattern on the daily chart. Experts said 15,834 is expected to be the crucial level for the downside, while 15,900 will be key to a strong uptrend.
A Hanging Man is a bearish reversal candlestick pattern usually formed at the end of an uptrend or at the top. In a perfect ‘Hanging Man’ pattern, there is a small upper shadow or no upper shadow at all, a small body and a long lower shadow.
Traders should wait for a strong breakout above 15,900 before creating long positions in the index, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.
“Albeit Nifty50 opened with a gap up, trading range remained extremely narrow with 58 points, which (was) depicted in an indecisive candle like Hanging Man,” Mohammad said.
In the next session, it is critical that the index sustains above 15,834 to retain positive bias. “In that scenario eventually a breakout above 15,900 can be expected, though it is too early to forecast such a breakout when markets are moving inside a range,” he said.
In case of a strong breakout above 15,900, a sustainable upswing shall emerge with targets towards 16,300, Mohammad said.
If the index breaches 15,834 on the downside, it can once again lead to volatility, he said.
India VIX remained flattish at 12.80 levels after declining in the previous two sessions.
On the options front, maximum Put open interest was seen at 15,000 followed by 15,800 strike, while maximum Call open interest was seen at 16,000 followed by 15,800 strike.
Minor Call writing was seen at 15,900 then 16,000 strike, while Put writing was seen at 15,900 then 15,800 strike. The options data indicates that the Nifty may see a broader trading range of 15,600-16,200 levels in the coming sessions.
The broader markets also participated in the run, as the Nifty midcap 100 index gained 1.56 percent and smallcap 100 index 0.91 percent.
The Bank Nifty opened positive at 34,760.90 and while it moved in a consolidative manner throughout the day, the last hour saw some weakness.
Banking stocks continued to move in a lacklustre way and settled the day with gains of 125.70 points at 34,710.
The banking index formed a bearish candle on daily charts but negated its lower highs formation of the last three sessions.
“It has to hold above 34,750 to move up towards 35,000 and 35,250 levels, while on the downside, support is seen at 34,500 and 34,350 levels,” said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
On stocks front, a bullish setup was seen in Piramal Enterprises, Container Corporation, Tata Power, Balkrishna Industries, DLF, SRF, Vedanta, Bata India, REC, Titan, PFC, Grasim, Ambuja Cements, Muthoot Finance, TCS, PVR, Infosys and Mindtree. Weakness was seen in UPL, Shriram Transport Finance, Exide Industries, Colgate Palmolive and LIC Housing Finance, he added.