Technical View: Nifty forms ‘Hanging Man’ on charts; level of 10,250 remain crucial for bulls

The Nifty50 which hit a record high of 10,340.55 in trade on Wednesday failed to keep the momentum going and the index closed below its opening level making a ‘Hanging Man’ type of pattern on the daily charts.

The large part of the rally was led by short covering after the index surpassed its previous record high of 10,251 earlier in the session. It started with a huge gap on the upside but closed below its psychological support level of 10,300.

A Hanging Man is a bearish reversal candlestick pattern that is formed at the end of an uptrend. In a perfect 'Hanging Man' pattern, there will be a small or no upper shadow. It would also have a long lower shadow with a small body.

Formation of a Hanging Man candle in the uptrend indicates a possible reversal or a top. But, Thursday being the expiry day, the market might witness some volatility. It has to continue to trade above 10,250 for bullish bias to continue.

In Wednesday's price action, Nifty50 rose to 10,340.55 which made a small upper shadow and slipped nearly 100 points to hit an intraday low of 10,240, which made a long lower shadow. The index closed 87 points higher at 10,295.35 which was below its opening level of 10,321.15.

“The Nifty50 registered yet another life-time high as the ‘doosra’ delivered by the FM propelled the PSU banking space for a massive short covering thereby leaving the bruised and battered bears to lick their wounds,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“But, at the end of the day Nifty50 appears to have witnessed a ‘Hanging Man’ kind of formation on the charts which may force the indices to pause in next trading session,” he said.

The market breadth remained muted towards the close on NSE with 622 stocks advancing as against 905 declines while on the BSE it was 1,160 advanced and 1,532 declined.

Mohammad further added that the breadth of the market is suggesting the same thing as on such a strong day for the index majority of the scrips witnessed profit booking thereby dominating the stocks which closed in the positive zone.

He further added that in the near-term we can expect Nifty to target 10,380 – 10,430 kind of levels whereas weakness shall remerge if it closes below 10,237 levels.

On the options front, maximum Put OI was seen at strike prices 10,200 followed by 10,100 while maximum Call OI was seen at strike prices 10,300 followed by 10,400.

“Fresh Put writing was seen at 10,300 strikes which suggest that momentum could continue while fresh Call writing is seen at 10,350 which may act as an immediate hurdle for expiry trading,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The index has given a range breakout of the consolidation of last seven trading sessions and now hold above 10,250 could extend the fresh leg of the rally. Now, it has to hold above 10,250 to witness an up move towards 10,400 while on the downside supports are seen at 10,250 and then towards 10,178,” he said.