Technical View: Nifty forms ‘Hanging Man’ pattern; 9930 crucial for bulls

The Nifty50 which opened flat and lost momentum managed to bounce back in the second half of the trading session as bulls managed to push the index back above 9,900 thus making a ‘Hanging Man’ kind of pattern on the daily candlestick charts on Friday.

A Hanging Man is a bearish reversal candlestick pattern which gets formed at the end of an uptrend, but it still requires confirmation. Formation of Hanging Man does not mean that bulls have lost control but it may give early signs of a slowdown in momentum.

In a perfect 'Hanging Man' pattern, there will be a small or no upper shadow and will have a small body and long lower shadow. In Friday’s price action, there was a small upper shadow.

In Friday's price action, Nifty50 rose to 9924 which made a small upper shadow and slipped nearly 90 points to hit intraday low of 9,838, which made a long lower shadow. The index closed 41.95 points higher at 9,915.25.

Traders are advised to trade cautiously as long as Nifty50 trades below 9928-9930 which is the record high for the index. A close above this level will open room for the index to climb Mount 10K.

“The Nifty50 appears to be stuck up in a range of 9930 to 9800 levels as bulls appear to be in no mood to give up their bets as a result of which buying emerged from intraday lows of 9838 which resulted in Hanging Man kind of formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Traders are advised to stay sidelines and take a call once such directional move emerges. On the down 9790 appears to be critical whereas for bulls 9930 seems to be the barrier. But still, bulls are prone to higher risk the more they rally,” he said.

Mohammad further added that fresh breakout on the indices can be expected only on a close above 10,000 levels which can extend the rally further on the upside.

On the options front, maximum Put OI was seen at strike prices 9,800 followed by 9,700 while maximum Call OI was seen at 10,000 followed by 9,900.

Fresh Put writing was seen at strike prices 9900, 9850 and 9800 which is supporting the market on declines while intact Call writing at 9900, 9950 and 10000 strikes are restricting its upside momentum.

“The index is stuck between the resistance zone of 9915 – 9930 which is the 127% price extension of the move from 9342 – 9709 – 9449. Also, the negative divergence and a breakdown in RSI Smoothened indicator are worrisome,” Mehul Kothari, Sr. Technical Analyst, IndiaNivesh Securities Limited told Moneycontrol.

“Thus, only a move above 9930 can push the index towards the much-awaited milestone of 10k. On the downside, 9830 is likely to act as a critical support for the market. A breach of the same might trigger some panic in the markets which could result in a further correction towards 9790 – 9730,” he said.

Kothari further added that at this point in time, we are not recommending exiting all longs but at least the profit should be booked in all leveraged positions because there are crucial resistance level which traders might face even if it surpasses 10K.