Technical View: Nifty forms hammer pattern, 11,400 crucial for further direction

The Nifty on September 30 recouped more than half of its losses in the last hour of the trade to close off the day's low, decisively defending the crucial support of 11,400.

The index ended above its 5-EMA placed around 11,450 and formed a hammer pattern on  daily charts as decline was being bought into the market but with supply intact in higher zones.

The hammer is a bullish reversal pattern formed after a decline. A hammer consists of no upper shadow, a small body, and long lower shadow. The long lower shadow of signifies that the stock tested its support, where demand was located and then bounced back.

Experts say if the index sees a positive trend then the bullish implication could take it towards 11,600-11,700 in the coming sessions.

The Nifty opened lower at 11,491.15 and hit an intraday low of 11,390.80, but the buying interest at lower levels helped it recover more than half of losses to touch the day's high of 11,508.25. Finally, it settled at 11,474.50, down 37.90 points from the previous close.

"Nifty50 continued its corrective and consolidation phase into the 5th trading session before smartly recoiling from the intraday lows of 11,390, after testing its 100-day moving average (11,408), which resulted in a hammer kind of formation," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

There appeared to be multiple support points around 11,400 and hence, in the next trading session if the index manages a positive close then it will have bullish connotations going forward, which should pave the way for a breakout above 11,695.

Strength would be confirmed if the index manages a close above 11,610, he said.

A close below 11,390 will, however, extend the correction towards 11,251 levels, Mohammad said. Therefore positional traders with high risk appetite can consider fresh buying around these levels, with a stop loss below 11,382 on closing basis and look for initial targets close to 11,695 levels, he said.

Shabbir Kayyumi, Head of Technical Research at Narnolia Financial Advisors, said as long as the index was trading above 5-EMA placed around 11,450, investors should opt 'buy on dip' strategy.

The India VIX fell by 1.47 percent to 15.87 levels. Option data indicated that the Nifty could be in a broader trading range of 11,200-11,800 in the coming sessions.

Maximum put open interest is at 11,000, followed by 11,500 strike, while maximum call open interest is at 11,500 followed by 12,000 strike. Call writing was seen at 11,500, followed by 12,000 strike, whereas marginal put writing was seen at 11,300 then 11,200 strike.

The Bank Nifty broadly underperformed the benchmark index and corrected sharply towards 29,000 levels. The index closed 2.6 percent lower at 29,103.85 and formed a bearish belt hold candle on the daily scale, negating its higher lows formation after three trading sessions.

"Now it needs to hold above 29,400 levels to witness a bounce towards 29,750 levels, while a hold below the same could drag it towards 28,750 then 28,500 levels," Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.