A Hanging Man is a bearish reversal candlestick pattern which is usually formed at the end of an uptrend or at the top.
After a sharp up move seen in the previous 4 sessions, it looks like Nifty50 is taking a breather. The index witnessed some profit booking at higher levels but managed to recoup losses and closed below the opening level making a ‘Hanging Man’ kind of pattern on charts.
A Hanging Man is a bearish reversal candlestick pattern which is usually formed at the end of an uptrend or at the top. In a perfect 'Hanging Man' pattern either there will be a small upper shadow or no upper shadow at all, a small body and long lower shadow.
The market witnesses a significant selloff in the trading session just like we saw in Wednesday’s trading session but still manages to recoup some of the losses and closes below the opening level.
The Nifty50 which opened at 10,652 rose marginally to an intraday high of 10,655 which resulted in insignificant upper shadow, but bears quickly took control and pushed the index towards 10,592 which made a long lower shadow on the daily charts.
The index bounced back in the last one hour of the trade from its 5-days exponential moving average (DEMA) placed at 10,593 to close 4.8 points lower at 10,632.
Investors are advised to stay long as long as Nifty holds above 10500 levels but if weakness pulls the index below the said level could turn the table in favour of bears.
“The Nifty50 registered a Hanging Man kind of formation which is usually visible around short-term turning points suggesting exhaustion in the current leg of the uptrend. This kind of formation especially after Tuesday’s Doji is certainly a cause for concern,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“Unless Nifty50 manages to get past 10660 levels in next trading session market should as well head towards 10500 kind of levels. Once the said level of 10500 is breached it should confirm short-term reversal with initial targets placed around 10400 levels,” he said.
Mohammad advises traders to remain cautious and should focus their attention towards stock-specific trading opportunities.
India VIX moved up by 1.34% at 14.03. VIX has to hold below 13-12.50 zones to support the fresh leg of the rally with a smooth ride in the market.
On the options front, maximum Put open interest was seen at 10500 followed by 10400 strikes while maximum Call OI is at 10700 followed by 11000 strikes.
Fresh Call writing was seen at 10700 strikes which is restricting its upside momentum while fresh Put writing at 10500 and 10600 could hold the market on declines.
“Option band signifies a moved in between 10550 to 10700 zones on an immediate basis. The Nifty index failed to continue its formation of higher highs – higher lows and formed a Hanging Man candle for the second consecutive session,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.“However, the decline is being bought but follow up buying is required to head towards new high levels. Now it has to continue to hold above 10600 zones to extend its up move towards 10700 while on the downside supports are seen at 10500 levels,” he said.