Technical View: Nifty50 forms 'Hammer' like candle; tread with caution

The Nifty50 which started with a gap down recouped most of its intraday losses and close above its crucial level of 10,800 for the fourth straight day in a row on Friday. It formed a Hammer like candle on the daily candlestick charts.

The index formed a Hammer like pattern for the second consecutive day in a row which indicates that the decline was bought into. The index bounced near its 13-EMA to close above its 5-EMA placed 10,808.

A Hammer which is a bullish reversal pattern is formed after a decline while a Hanging Man is a bearish reversal pattern. A Hammer consists of no upper shadow, a small body, and long lower shadow.

The long lower shadow of the Hammer signifies that it tested its support where demand was located and then bounced back. The index bounced back near its crucial support placed around 10,754.65.

Investors are advised to remain cautious and await for a breakout or a breakdown before initiating fresh positions. A close above 10,930 would result in a breakout while a break below Friday’s low of 10,755 could bring back bears on D-Street.

"Nifty50 registered Hammer formation to sign off the last session of the week suggesting that bulls are still in the game as they snatched the match away from the clutches of bears. Last two days of price action is suggesting that some sort consolidation is on between the bulls and bears with equal balance of power owing to which market lacked clear cut direction," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

However, entire weeks price action remained inside 138-point narrow range leaving a dominant upper shadow which is a cause for concern, he said.

He further said unless indices close above 10,930 levels bulls will not gain upper hand and this breakout is inevitable for them to reach safe shores. "Similarly a close below 10,755 shall re-establish the supremacy of bears. Hence, as long as market remains inside the zone of 10,930–10,755 traders are advised to remain cautious.

India VIX slipped 0.25 percent to 12.07 levels.

On the option front, maximum Put open interest (OI) was seen at 10,700 and 10,600 strike while maximum Call OI was at 11,000 followed by 10,800 strike.

Put writing was seen at 10,700 followed by 10,800 strike while Call writing was seen at 10,800 and 11,000 strikes. Option data suggested a trading range in between 10,700 to 10,900 zones.

"Nifty future opened flattish and remained volatile for the most part of the trading session. It formed a Hammer candle on daily scale which indicates that decline is being bought into the market. Now it has to continue to hold above 10,750-10,770 zones to extend its move towards 10,888 levels," Chandan Taparia, Associate Vice President and Analyst-Derivatives, Motilal Oswal Securities said.

He further said the Nifty has been making higher highs - higher lows from last four weeks and a hold above 10,750 zones is very important if index has to move higher.

Bank Nifty opened negative and remained under pressure throughout the trading session. It formed a Bearish candle on a daily scale and an Inside Bar Pattern on weekly scale which indicates that follow up on the either side is missing.

"It is forming lower highs - lower lows from last three trading sessions which indicates some under performance as compare to broader index. Now it has to hold above 26,500 zones to witness an up move towards 26,750 while on the downside immediate support is seen at 26,250 and then 26,100 zones," Taparia said.