Technical View: Nifty forms ‘Hammer’ kind of pattern; tread with caution

The Nifty50 which started on a muted note breached its crucial support level of 10,100 in trade but bulls managed to push the index towards its opening level which made a ‘Hammer’ like the pattern on the daily candlestick charts.

The Nifty50 which opened at 10,139.60 rose to an intraday high of 10,158.90 but then bears took control over the D-Street and pushed the index below 10,100. The index bounced back from its 13-days exponential moving average placed around 10,060 before closing at 10,121 down 19 points.

A Hammer is a bullish reversal pattern which forms after a decline. It is formed when the index trades significantly lower than its opening price for the most part of the trading day but bulls manage to push the index either above or near its opening level towards closing.

It has no or a tiny upper shadow, a small body, and a long lower shadow. The strong finish indicates that buyers regained their hold on D-Street which is a bullish sign.

However, some experts are not entirely convinced and suggest investors ignore the last minute buying as it could be an early indication of an intermediate top. A confirmation would come, it the index breaks above 10,179 – all-time high level for Nifty.

“The Nifty50 registered a Hammer kind of formation as it smartly recovered from the intraday lows of 10,058 levels after testing 13 days-DEMA. However, this intraday recovery in itself should not be read as a positive sign unless Nifty registers a fresh breakout above 10179 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“The index recorded a narrow range bound move for almost 6 trading sessions which can also be a sign of distribution at the top. As our momentum oscillators also generated a sell signal we advise traders to remain cautious. In case Nifty breakout above 10,179 then it can initially extend its rally up to 10329 levels,” he said.

India VIX remained flattish at 11.63. Lower volatility is supporting the bullish bias of the market even after the profit booking decline of 100 points from higher zones.

On the options front, maximum Put OI was seen at strike prices 9,900 and 10,000 while maximum Call OI was seen at strike prices 10,200 followed by 10,100.

Significant fresh Call writing was seen at strike prices 10,100 while Put unwinding was seen in all the strikes from 10,200 to 10,000.

“Intact Call writing at 10200 is restricting its upside momentum while unwinding in 10000 Put is slightly shifting its support to lower zones. Technically, it formed a Hammer candle on the daily chart which has long lower shadow indicates that decline is being bought in the market,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The index started to form lower highs from the last two sessions and absence of follow-up buying is restricting its upside momentum. It respected to its rising support trendline by connecting swing lows of 9783, 9913 and 10050 zones,” he said.

Taparia further added that if Nifty manages to hold above 10,138 zones then it may head towards 10,178 and 10,200 zones while on the downside supports are seen at 10,080 and 10,050 zones.