Technical View: Nifty forms a ‘Hanging Man’ pattern; RBI policy outcome eyed

The Nifty opened with a gap on the higher side but failed to hold on to the momentum and closed below its opening level making a ‘Hanging Man’ kind of pattern on intraday charts.

A Hanging Man is a bearish candlestick pattern which is usually formed at the end of an uptrend. The index bounced back after hitting a low of 9687 on 28th September to 9859 on 3rd October.

In the exact pattern, market witnesses a significant selloff towards opening but manages to recoup losses and closes near the opening level. However, in Tuesday’s session, Nifty closed 34 points short of its opening level.

The Nifty opened at 9893 and closed at 9859.50 on Tuesday. It slipped to an intraday low of 9831.05 thus resulting in a long lower shadow and a high of 9895.40 which was close to the opening level and formed a small upper shadow.

The selloff is usually seen as an early indication of a short-term top being formed. However, traders should not base their decision on this pattern alone as RBI policy outcome could decide the near-term trend for markets.

Any disappointment from the RBI could put the rally under stress. Most experts see the central bank maintaining a status quo stance on Wednesday when it will unveil its outcome.

“The Nifty registered a Hanging Man kind of formation after a gap up opening. In this process it also tested its 50-Days Exponential Moving Average but failed to capitalise on the strong opening which is a cause for concern as trading on index remained subdued during the course of the day,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“This kind of intraday range bound move after strong opening can be a pause ahead of RBI Monetary policy which is likely to set the tone for the immediate short term. However, technically speaking, any close above 9921 levels shall consider as a sign of strength,” he said.

A close above 9921 shall bring back momentum which should tilt the tide in favour of bulls in the short term with an initial target placed in the zone of 9991 – 10080.

On the other hand, any disappointment from RBI policy shall abort the pullback attempt there by resuming the downtrend. “Hence, traders are advised to look for strength and remain cautious with long side positions,” said Mohammad.

India VIX fell down by 0.96 percent at 12.36 and falling volatility from last three sessions is supporting the buying interest.

On the options front, maximum Put OI was seen at 9700 followed by 9800 strikes while maximum Call OI is at 10000 followed by 9900 strikes.

Fresh Put writing was seen at 9800, 9900 and 9700 strikes while fresh Call writing was seen at 10100 strikes.

“Option data suggests a shift of supports and resistances to higher levels which may extend its bounce back move. The Nifty continued its bounce back move for third consecutive session after forming short-term bottom near to 9685 mark,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Even after the recovery of last three sessions, it failed to surpass a big negative candle of 9921-9714 made on 27th September,” he said.

Taparia further added that it has to continue to hold above 9820 zones to extend its bounce back move towards 9900-9928 while on the downside supports are seen at 9777 and 9720 zones.