Technical View: Inverted Hammer formation after downtrend and sharp fall in VIX suggest rebound in Nifty

Nifty Technical Trend

The Nifty 50 closed flat with a negative bias after rangebound trading on February 25. The index continued its downward move for the sixth consecutive session but sustained above the 22,500 zone for another session. Considering the formation of an Inverted Hammer candlestick pattern on the daily charts, along with India VIX falling below the 14 level and the momentum indicator RSI in the oversold zone, the possibility of a rebound seems high in the upcoming sessions. In that case, the hurdle on the higher side is placed at 22,700–22,800. However, in case of a downtrend, 22,500 is the immediate support for the index, followed by 22,400, which is considered a key support, according to experts.

The Nifty 50, after opening lower at 22,516, traded within the range of 22,625 and 22,514 during the day. The index finished at 22,548, down 6 points, and formed a small bullish candle with a long upper shadow, resembling an Inverted Hammer candlestick pattern on the daily charts after the decline or near the support, signaling the chances of a rebound. Confirmation of this will be seen only after the action in the following session.

According to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, the underlying trend of Nifty remains choppy.

"Formation of a bullish candlestick pattern on Tuesday and the slowing down of selling momentum near the supports of 22,410 (20-month EMA) signal the chances of an upside bounce from the lows in the short term," he said.

The monthly options data indicated that the index is likely to face resistance at 22,700 and see support at 22,500 in the upcoming monthly F&O expiry session scheduled on February 27.

On the Call side, the maximum Call open interest is placed at the 22,700 strike, followed by the 23,500 and 23,000 strikes, with the maximum Call writing at the 22,700 strike, followed by the 23,500 and 22,650 strikes. On the Put side, the 22,600 strike holds the maximum Put open interest, followed by the 22,500 and 22,000 strikes, with the maximum Put writing at the 22,600 strike, followed by the 21,650 and 21,700 strikes.

The market will remain shut on February 26 for Mahashivratri.

The Bank Nifty also formed an Inverted Hammer-like candlestick pattern following a Dragonfly Doji-kind of pattern in the previous session, raising the possibility of a trend reversal in the upcoming sessions. The index closed at 48,608, down 44 points, while consistently defending the 48,500 and 48,300 support zones.

"The 48,500 level remains crucial for bulls; any sustained move below this could trigger fresh shorts, pushing the index toward 48,200–48,000," Anshul Jain, Head of Research at Lakshmishree Investments, said.

According to him, for any recovery, Bank Nifty must reclaim higher levels and sustain above the 8-day EMA (49,000). Until then, downside momentum remains strong, and traders should watch 48,500 closely for the next big move, he added.

Meanwhile, finally, the India VIX breached the 14 mark, falling 5.04 percent to close at the 13.72 level, providing comfort for bulls now. As long as it sustains below the 14 mark, bulls may continue supporting the market.