Tech View: Nifty50 forms a 'hammer-like' pattern; buy on dips for a target of 9,218

The Nifty50 moved in a tight range with a negative bias throughout the trading session on Tuesday but bulls managed to push the index towards its opening level which made a 'hammer-like' pattern on the daily candlestick charts.

Formation of a hammer type pattern after a bearish belt hold in the previous session is a positive sign for investors. It suggests that market is attempting to determine a bottom. Investors can create long positions on dips for a target of 9,218-9,250 which was its recent record high.

“A Hammer candle after the profit booking of last two sessions indicate that bulls are back and decline is being bought in the market,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The index has to surpass its immediate hurdle of 9,150-9,160 zone to witness a fresh up move towards its lifetime high of 9,218 and then towards 9,250 levels while on the downside supports are seen at 9,075 zone,” he said.

However, Tuesday’s pattern cannot be qualified as an exact 'hammer’ pattern. A perfect hammer is formed when the index trades significantly lower than its opening price for the most part of the trading day but manages to rally either close above or lower to its opening price.

In the exact pattern, the size of the lower shadow should be at least twice the length of the body and the range between the highest and the lowest level should be relatively large. However, in Tuesday’s session, there was a small upper shadow.

The Nifty50 index opened at 9,133.95 and rose to an intraday high of 9,147.75 and retraced nearly 60 points to touch its intraday low of 9087.20. The Nifty50 bounced back after slipping below its crucial 5-days EMA placed at 9,110 to close at 9,121.50, down 5.3 points.

“The Nifty50 registered hammer-like formation on the candlestick charts after filling the gap area present in the zone of 9,128 – 9,106 witnessed on 16th March,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“As long as the index sustains above its crucial support of 9,087 registered in last trading session, Nifty50 shall ideally resume its uptrend in next trading session and challenge the recent top of 9,218 levels in next couple of trading sessions,” he said.

Mohammad recommends traders to create long positions by making use of current dip for initial targets placed around 9,218 with a stop below 9,030 on a closing basis.