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Technical View | Nifty forms Hammer pattern, defends 17,000 but may remain rangebound

Though the index smartly defended 16,900-17,000 levels which could be crucial support levels in near term, the volatile trade is likely to continue till there are some positive cues on the Ukraine war, experts say.

April 27, 2022 / 05:48 PM IST

The Nifty50 reversed some of the previous day's gains and closed with nearly a percent loss amid volatility, as every sector participated in the correction on April 27, ahead of the expiry session for April futures and options contracts. Weak Asian cues after rout on Wall Street overnight, intensified  energy crisis, growth worries due to the COVID situation in China, and the Ukraine war put pressure on the market.

The index formed a small-bodied bearish candle which resembles a Hammer kind of pattern formation on the daily charts, as the index recovered smartly from the day's low. As the index smartly defended 16,900-17,000 levels which could be crucial support levels in the near term, the volatile trade is likely to continue till there are some positive cues on the Ukraine war, experts say.

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 that the stock bounced back after testing its support, where demand is located.

The volatility, which was cooled down significantly in the previous session, spiked over 20 levels again, which is a supportive factor for bears. Hence the same needs to get back to around 17-18 levels for some kind of stability in the market. India VIX increased by 7.38 percent to 20.61 levels.

Also read - Taking Stock | Bears back in action; Nifty ends below 17,100; Sensex dives 537 points

Close

The Nifty50 saw a gap down opening at 17,073 and fell up to 16,958 in the afternoon, but it showed about 80 points recovery from that low point and closed with 162 points loss at 17,038.

"The Nifty50 continued its volatile moves and by the end of the day, it registered a Hammer kind of formation as it smartly recovered from the intraday low of 16,958 levels," Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia said.

He further said considering recent volatility this pattern may not have any significance but the Nifty may be chalking out a triangular structure which seems to be nearing its completion. Hence, at this point in time, it can be difficult to project the near-term direction of the market as it may break out in either of the directions.

Therefore for time being, it looks prudent to remain neutral on the index until some signs of strength are visible, Mazhar Mohammad says.

Also read - Equity valuations have more downside, says Sanjay Mookim of JP Morgan India

On the option front, maximum Call open interest was witnessed at 17,500 strike followed by 17,200 strike while maximum Put open interest was seen at 17,000 strike followed by 16,400 strike. Call writing was seen at 17,100 strike and then 17,300 strike, while Put writing was seen at 17,000 strike followed by 16,900 strike.

The abovementioned option data indicated that the Nifty50 could see a trading range of 16,850 to 17,200 levels in coming days as breaking of which on either side could get near-term direction.

The broader markets also traded lower with the Nifty Midcap 100 and Smallcap 100 indices declining 0.86 percent and 0.61 percent respectively.

The Bank Nifty opened gap down at 36,067 and moved in a consolidative manner. It showed recovery from lower levels in the second half of the day and closed with losses of 376 points at 36,029.

Also read - Gainers & Losers: 10 stocks that moved the most on April 27

The index formed a small-bodied bearish candle on the daily scale with a long longer shadow. "Now it has to hold above 36,000 for an up move towards 36,250 and 36,500 zones whereas supports are placed at 35,750 and 35,500 levels," Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services said.

On the stocks front, he said there was a positive setup in Hero MotoCorp, Mahanagar Gas, ACC, M&M Financial, MRF, Voltas, Colgate Palmolive, TVS Motor, Bajaj Auto, Biocon and Eicher Motors, while weakness was seen in Bajaj Finance, Mindtree, InterGlobe Aviation, Bajaj Finserv, Muthoot Finance, HPCL, Indian Energy Exchange, SBI Life, Coal India, Wipro, NALCO, UPL, ONGC and BPCL.

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.



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Sunil Shankar Matkar
first published: Apr 27, 2022 05:48 pm
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