Tech View: Nifty forms ‘Hanging Man’ kind of pattern; sit tight on cash
A hanging man is usually formed at the end of an uptrend, but for now, there are no visible signs.
The Nifty, after hitting a fresh record high of 9,532.60 on Wednesday, came under slight profit booking pressure and slipped to its intraday low of 9,486.10, but bulls managed to bring the index back to the opening level making a ‘hanging man’ kind of pattern on charts.
A hanging man is usually formed at the end of an uptrend, but for now, there are no visible signs. Hence, investors have to wait for some confirmation which could come from Thursday’s close. The next candle needs to close below the Wednesday’s low of 9,486.10.
In a hanging man pattern, the index witnessed significant downside at the open or in early trade but bulls manage to push the index back to the opening level. In a perfect 'hanging man' pattern, there will be a small or no upper shadow.
However, in Wednesday’s pattern, a small upper shadow could be seen. The Nifty opened at 9,517.60 and rose to a record high of 9,532.60. It witnessed selling pressure at record highs and slipped to an intraday low of 9,486.10, which created long lower shadow before closing 13.5 points higher at 9,525.75.
For the upside to continue, the Nifty has to hold above 9,480 zones to extend its up move towards 9,550 and 9,600 which might act as the crucial resistance level for the index. There could be a possibility of a correction or some consolidation and thus investors are advised to sit on cash.
“The Nifty50 registered a ‘Hanging Man’ kind of formation, on the back of negative advance/decline ratio, after witnessing extremely narrow range of 48 points throughout the trading session suggesting that markets are in for a corrective and consolidation phase,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“The momentum oscillators on lower time frame charts are also in extremely overbought zone suggesting a pause or correction. For time being, the upside will be capped around 9550 whereas a slip below 9449 on closing basis shall trigger short term down trend. Hence, we advise traders to sit tight on cash and await a possible corrective swing,” he said.
On the options front, maximum Put OI was seen at strike prices 9,300 followed by 9,400 while maximum Call OI was seen at strike prices 9,500 followed by 9,600.
Fresh Put writing was seen at strike prices 9,500 which is suggesting that support is shifting higher from 9,300 earlier which is a bullish sign while fresh Call writing at 9600 is likely to act as a strong barrier for the index.
“The Nifty index continued its upwards journey and made a new record life high of 9532. It formed a Doji body candle on the daily chart but overall has been making higher top – higher bottom formation and support are gradually shifting higher,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.“For the upside to continue, Nifty has to hold above 9,480 zones to extend its up move towards 9,550 and 9,600 while on the downside supports are seen at 9,450 and 9,420,” he said.