Moneycontrol
Jul 14, 2017 05:26 PM IST | Source: Moneycontrol.com

Technical View: Nifty forms ‘Hanging Man’ on charts; tread with caution

The Nifty50 closed below its crucial support level of 9900 and now a decisive close above this levels is likely to build momentum for bulls whereas a break below 9850-9823 could fuel bearish sentiment, suggest experts.

The Nifty50 pared gains after hitting fresh record high of 9913.30 and closed marginally lower on Friday making a ‘Hanging Man’ kind of formation on the daily candlestick charts.

A Hanging Man is a bearish reversal candlestick pattern that is formed at the end of an uptrend (400-point rally from its recent low of 9,450).

In a perfect 'Hanging Man' pattern, there is no upper shadow, a small body, and long lower shadow. The selloff is usually seen as an early indication of a short-term top being formed.

In this pattern, market witnesses a significant selloff in the beginning of the trade so the opening level becomes the highest point of the trade and then the index trades lower.

However, the pattern still needs confirmation and investors should wait for Monday’s price action before taking a call. Investors will be better off booking some profits now and avoid initiating fresh positions until new signs are available.

In Friday's price action, Nifty50 slipped from 9913.30 levels to 9845.45 which made a long lower shadow on the candlestick charts. The index finally closed 5.3 points lower at 9,886.35.

The Nifty50 closed below its crucial support level of 9900 and now a decisive close above this levels is likely to build momentum for bulls whereas a break below 9850-9823 could fuel bearish sentiment, suggest experts.

“The intraday recovery from the day’s low of 9845 levels shall not be read as a positive sign as it resulted in a Hanging Man kind of formation which is usually seen around the short term tops as it suggests exhaustion of the ongoing momentum,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Besides technical parameters on the lower time frame charts are getting skewed in favour of bears as we observed at least 3 bearish formations pointing towards correction,” he said.

Mohammad further added that we will not be surprised if market extends its correction into a couple of trading sessions more and strongly advise to be in cash for some time till more stable signs are witnessed in the market.

The Nifty filled the partial gap of 9824-9853 made on Thursday and recovered most of its loss to close near to 9900 zones.

For the momentum to continue, Nifty has to continue to hold 9850 zone to witness an up move towards 9950-10000 zones while on the downside supports are seen at 9820 then 9750 mark.

On the options front, maximum Put OI was seen at strike prices 9,600 and 9,700 while maximum Call OI was seen at 10000 followed by 9900 strikes.

Significant Put writing at 9900, 9800 and 9750 strikes which are continuously shifting its support to higher zones while Call writing is seen at 9900 to 10000 strikes.

“Major Put writing at 9900 strikes suggests that this up move likely to continue while Call writing at 9900 and 10000 strikes is restricting its pace of up move and momentum to test 10,000 mark,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“We are gradually witnessing a shift in higher option band with rising Put Call Ratio. PCR OI based on the Open interest of Nifty is near to 1.50 which is at 5 years high levels, rising Put Call Ratio suggests that Put writers are more comfortable and confident for the market rally but much higher Put Call Ratio some time gives a sign of overbought scenario,” he said.
Sections
Follow us on
Available On