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The Nifty50 which rose to a fresh record high in morning trade thanks to strong global cues pared gains towards the closing of the session and formed an Inverted Hammer kind of pattern on the daily candlestick charts.
An Inverted Hammer is a reversal pattern in which the index closes near its opening levels. It has a long upper shadow, small or no lower shadow, and a small body.
The index formed an Inverted Hammer or Shooting Star kind of candle on the daily chart which indicates a pause in bounce back if follow up supply happens on next trading sessions. However, it still requires confirmation.
In Monday's session, Nifty50 opened at 10,718 and closed at 10,741.55. It formed an intraday low of 10,713.80 and a record high of 10,782.65.
Investors are advised to watch the price action in the next couple of sessions to confirm the trend. Till then, they should remain long with a strict stop loss placed below 10,690 levels. If the index manages to stay above 10,780 then the rally could stretch towards 10,800 levels.
“The Nifty50 registered an Inverted Hammer kind of formation as profit booking appears to have kicked in from the highest point of the day which forced the indices to close way below its intraday high post gap up opening,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“This is clearly suggesting some sort of nervousness on the part of market participants as what appears to be a strong day ended up with the weak structure on the charts with the negative advance-decline ratio,” he said.
Hence in the immediate trading session, it may come under pressure if it slips below 10713 levels whereas short weakness will be confirmed by a close below 10690.
Mohammad further added that if indices manage to sustain above 10782 then the rally shall get extended up to 10870 levels. Hence traders are advised to put a tight stop below 10690 on a closing basis.
India VIX moved up by 4.19% at 14.30. VIX has to hold below 13 zones to continue with its positive and smooth ride in the market.
On the options front, maximum Put open interest is at 10500 followed by 10600 strikes while maximum Call OI is at 11000 followed by 10800 strikes.
Fresh and significant Put writing was seen at 10700, 10800, 10750 and 10600 strikes which are shifting its support while fresh Call writing at 10800 could act as an immediate hurdle.
“Option band signifies a trading band between 10650 to 10850 zones. Technically, Nifty formed an Inverted Hammer at the top and trading near to its supply trend line of the monthly chart but bulls are not ready to lose their grip,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“Overall index has been making the higher top – higher bottom formation and supports are gradually shifting higher. Now it has to continue to hold 10700 zones to extend its move towards 10800 and 10850 while on the downside supports are seen at 10650 and 10600 levels,” he said.
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