Technical View: Nifty forms Hammer pattern, 10,872 crucial for multiday upswing

The Nifty50, barring initial few minutes of volatility, remained positive through the session and extended rally in late trade on July 16 despite weak global cues. The surge in technology stocks, after better-than-expected earnings from Infosys, banks and auto stocks lifted the market mood.

The index closed above the 10,700-mark and formed a small-bodied bullish candle that resembled a Hammer pattern on daily charts.

The Hammer is a bullish reversal pattern formed after a decline. A hammer consists of no upper shadow, a small body, and long lower shadow. The long lower shadow signifies the stock tested its support, where demand was located and then bounced back.

Experts say the Nifty may remain in 10,850-10,560 range and a major upside is likely only if the index decisively surpasses its 200-DMA.

For the time, traders should remain neutral on the long side as despite this positive close, the advance-decline ratio remained decisively in favour of the bears, while positional shorts, if any, should be squared off if the Nifty registers a close above 10,800,  Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol..

The Nifty50 opened higher at 10,706.20 and remained in positive terrain for most of the session to hit an intraday high of 10,755.30 in late trade. The index signed off at 10,740, up 121.80 points or 1.15 percent.

"The Nifty50 smartly recoiled in the later part of the session. with an intraday low of 10,595 levels, which depicted a Hammer formation. In fact, 10,600 level appears to be emerging as some sort of psychological support on a closing basis," Mohammad said.

As long as the index sustains above 10,562, a new trading range can be expected between 10,850 and 10,560, and a fresh buying opportunity with a multiday upswing shall arise only on a strong close above its 200-day moving average, placed at around 10,872 levels.

If the index closes below 10,560, then it shall catapult the momentum once again in the favour of the bears with a downside target of 10,200 levels, he said.

On options front, maximum Put open interest was at 10,000 strike followed by 10,500 strike, while maximum Call open interest was at 11,000 followed by 11,500 strike. Call writing was seen in 11,300 and 11,500 strike, while Put writing was seen at 10,600 and 10,500 strike, which all data points indicated that the Nifty could trade in an immediate range of 10,500 to 10,900 levels.

The Bank Nifty opened negative and drifted towards 21,000 levels in the initial hour of the session. However, it consolidated between 21200 and 22400 for the most part of the day but witnessed sharp movement towards 21,700 zone in the last hour.

The index closed at 21,597.20, up 256.40 points or 1.20 percent, and formed a Hammer on the daily scale as buying was seen at lower levels while supply pressure was intact at higher zones.

"Now the Bank Nifty needs to hold above the 21,300 zone to witness a bounce towards 22,000- 22,200 levels while on the downside, major support is seen at 21,000 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

India VIX fell by 3.53 percent to 25.36 levels.