Technical View: Nifty forms ‘Hammer’ like pattern; tread with caution next week

The Nifty50 witnessed last minute recovery which pushed the index back above 10,000 level on Friday making a bullish candle which looked like a ‘Hammer’ like pattern on the daily candlestick charts.

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.

The index bounced back from its 10-days exponential moving average (DEMA) placed at 9943 levels to close above 5-DEMA at 9,991. For the index to hold momentum in the coming week, it has to stay above 9,950-9,980 levels.

The index opened at 9996.55 and rose to an intraday high of 10,026.05. It quickly lost momentum at higher levels and slipped to an intraday low of 9,944.50 before closing 6.05 points lower at 10,014.50.

“The Nifty50 registered a Hammer formation on the charts as it recoiled after retracing 62% of its last leg of the rally from the lows of 9,838 on lower time frame charts,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Although this kind of formation should have bullish connotations going forward provided the index attracts a follow-up buying in next trading session. Traders should not ignore the fact that markets were reeling under pressure for major part of the session after witnessing a gap down opening and hence no special emphasis should be laid on the last minute recovery,” he said.

Mohammad advice traders to maintain neutral to negative stance on the index unless Nifty50 registers a decisive close with a good positive market breadth above 10,000 levels which should drive away the fear of traders about this psychological land mark.

On the options front, maximum Put OI was seen at strike price 9,800 followed by 10,000 while maximum Call OI was seen at strike prices 10,500 followed by 10,100.

However, OI concentration is scattered at different strikes but maximum Call OI is shifted at 10500 which is giving the scope for a further upside.

The Nifty50 closed the week with the gain of 1 percent and registered a remarkable weekly close above 10,000 mark. The index also registered a fourth consecutive positive weekly close.

“The Nifty50 formed a Hammer Candle on the Daily chart which indicates that decline is being bought in the market after the recent profit booking of 150 points from a recent high of 10114 levels,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Now, the index has to hold above 9980 zone to witness an up move towards 10100 then 10250 while on the downside supports are seen at 9950 and 9928 mark,” he said.