Moneycontrol
Sep 08, 2017 05:04 PM IST | Source: Moneycontrol.com

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

Investors should trade with caution and initiate fresh long positions only when there is a breakout above 10,137 which was the all-time high level.

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

The Nifty50 moved in a narrow range throughout the trading session on Friday and made another small bodied candle on the daily charts and a 'Hanging Man' kind of pattern on the weekly charts.

The Nifty50 consolidated in a narrow range and closed the week with a loss of 0.4 percent. The index closed at 9,974 on Friday, but then drifted lower to close at 9,934 for the week ended September 8.

However, bulls managed to keep the index above 9,900 levels throughout the week.

A Hanging Man is a bearish reversal candlestick pattern which is formed at the end of an uptrend. The pattern is formed when the index witnesses significant selling pressure at the open 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, and a long lower shadow with a small body. Formation of a Hanging Man candle in the uptrend indicates a possible reversal or a top and hence trader should remain cautious.

Investors should trade with caution and initiate fresh long positions only when there is a breakout above 10,137 which was the all-time high level.

The Nifty50 index opened at 9,958 and rose marginally to its intraday high of 9963.60. It witnessed selling pressure above its crucial psychological resistance level of 9,950 which pulled the index towards its intraday low of 9,913. The index finally closed 4 points high at 9,934.

“The Nifty50 signed off the week with a Hanging Man kind of indecisive formation on weekly charts as it continued its rangebound move of around 50 points into 4th session,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Interestingly, on weekly charts, this kind of formation occurred after retracing 62 percent of the entire loss from the highs of 10,137 levels suggesting that preceding three positive weekly closes are not strong enough to register a breakout going forward,” he said.

In the absence of any buy signals on critical momentum oscillators, it will be difficult to anticipate that this market will breakout in the near future.

Mohammad advises traders to remain cautious and initiate longs only when indices firmly trade above 9,988 levels and even then the upsides shall get capped around 10,088 levels.

“On the other hand a close below 9,800 levels shall confirm weakness which should ideally threaten the lows of 9700 going forward,” he said.

There are lackluster cues from derivatives data as well which also kept investors and traders on back-foot since no major shift in range was seen. Any significant change in the 9,700 - 10,000 strikes will also give some much-needed breather and cues which market needs for a breakout or a breakdown.

“The Nifty formed a ‘Hanging Man’ pattern on weekly charts. It is usually formed in an uptrend which indicates a reversal. Any gap down open in the coming week will further trigger the squeezed range out of a bearish momentum,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“The immediate support on the weekly chart comes at 9,850 which if breached on a closing basis will turn sentiments downward to 9,750 - 9,600 while Upside is capped by bulls at 9,980 – 10,020,” he said.
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