Technical View | Nifty forms bullish 'Hammer', rangebound trade likely to continue

The Nifty50 closed with losses due to heavy selling in oil & gas space after the government imposed a windfall gains tax on domestic crude oil production and raised taxes on the export of ATF, diesel & petrol. However, the index managed to strongly defend 15,700 in late trade, the crucial support level, backed by FMCG, IT, banking & financial services stocks.

The index has formed a bullish Hammer kind of pattern on the daily charts as the index recovered around 240 points losses from the day's low. The healthy recovery from the day's low and holding the crucial support may be raising hopes for further upside in the coming session but the sharp upside is likely only above 16,170 levels. Till then, a rangebound trade and tug of war between bulls and bears can't be ruled out, experts said. The next support level could be 15,500.

The Hammer is a bullish reversal pattern formed after a decline. It consists of no upper shadow, a small body, and a long lower shadow. The long lower shadow signifies the stock bounced back after testing its support, where demand is located.

India VIX, the fear index was down by 2.7 percent to 21.25 levels. Volatility cooled down giving some respite to the bulls but is still at higher zones and needs to further come down for market stability, experts said.

The broader space had an outperformance on Friday with the Nifty Midcap 100 and Smallcap 100 indices rising half a percent and fourth of a percent respectively with positive breadth. About 1,003 shares advanced against 926 declining scrips on the NSE.

The Nifty50 opened lower at 15,704 and extended losses to hit a day's low of 15,511 in the morning itself, but immediately started gradual recovery and turned positive in late trade to hit an intraday high of 15,794. The index finally settled with 28 points loss at 15,752.

"Nifty50 smartly recovered from the intraday low of 15,511 levels to register a Hammer kind of formation on the daily chart. However, on the weekly charts, it appears to be staring at a bearish gap zone of 15,886 and 16,172 levels. Unless Nifty absorbs the supplies emanating from the said bearish zone, with a close above 16,172 levels, a sustainable up move shall not be expected," Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia said.

Moreover, the market expert feels for a long side trade from the current levels, technically, the stop-loss level remains below 15,511 which may not deliver a favourable risk-reward ratio as initial resistance is placed around 15,900 levels. Hence, he advised traders to wait for more signs of strength for a long side trade.

The index gained a third of a percent on the weekly basis and formed a bearish candle which resembles a Hammer kind of pattern on the weekly scale.

On the Options data front, we have seen a maximum Call open interest at 17,000 strike followed by 16,500 strike while there was maximum Put open interest at 15,000 strike followed by 15,500 strike. Marginal Call writing was seen at 16,000 strike then 16,500 strike while Put writing was seen at 15,500 strike followed by 15,700 strike.

The above Option data suggested that a broader trading range for the Nifty50 could be 15,300 to 16,300 levels for coming sessions.

Bank Nifty opened negative at 33,265 but showed stellar recovery right from the start of the day. It took support at 33,100 levels and trended upwards throughout the day to 33,666, an intraday high.

The banking index outperformed the broader markets and closed with gains of 114 points at 33,539.

The index formed a bullish candle on the daily frame but a bearish candle on the weekly frame and negated its lower highs of the last three weeks. It shed a third of a percent for the week. "It has to hold above 33,333 to see an up move towards 33,750 and 34,000 whereas supports are placed at 33,000 and 32,750 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

On the stocks' front, "we have seen positive setup in Jubilant Foodworks, ITC, Bajaj Finance, United Spirits, LIC Housing Finance, United Breweries, Federal Bank, Britannia, DLF, Asian Paints, Dabur, Bosch, HDFC AMC, HUL, HDFC, Colgate Palmolive, Nestle India, ACC, Torrent Pharma, PVR, Ambuja Cements, Infosys and Axis Bank," the market expert said.

However, ONGC, Reliance Industries, Vedanta, SRF, Mphasis, L&T Technology, and IRCTC witnessed weakness, Taparia added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Disclaimer: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.