The inverted hammer is formed when the low of the day and closing price is approximately at the same level.
“The Nifty index opened positive, but failed to surpass immediate hurdle placed at 9,218 and corrected sharply towards 9,100 levels. It negated the effect of previous day’s doji candle and formed a strong bearish candle on the daily chart by closing below its 13 DEMA,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told moneycontrol.
“It continued its losing streak for the fourth consecutive session and now a hold below 9,165 may drag the index towards 9,020-9,000 zone, while on the upside hurdles are seen at 9,191 and 9,218 mark,” he said.
The inverted hammer is formed when the low of the day and closing price is approximately at the same level. However, in Tuesday’s price action the intraday low of Nifty was placed at 9,095.45 while the closing price was above its crucial resistance level of 9,105.15.
The Nifty, which started with a gap on the upside, came under selling pressure at higher levels which took the index below its support level of 9100.
The formation of an inverted hammer like pattern after falling from four consecutive sessions signal markets is nearing its bottom which could be near its strong support level of 9020.
However, it still needs confirmation. What happens on the next day after the formation of an inverted hammer like pattern will dictate the direction for markets.
“The Nifty registered an inverted hammer kind of formation as the intraday rally was sold off by the market participants from the highs of 9,218 levels. Albeit this can be considered as a weak sign,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told moneycontrol.
“If inverted hammer forms in a downtrend then the probability of markets bottoming out will also be higher and the selloff from intraday high can be attributed to the skepticism on the part of bulls about the sustainability of the rally,” he said.He further added that our wave counts are also suggesting that market is nearing its corrective pattern and should ideally bottom out slightly below 9,019 levels from where the new leg of up move should unfold.