Technical View: Nifty forms Hammer pattern on weekly charts, sideways trade may continue

The Nifty50 remained rangebound throughout the session and closed moderately higher on September 11 on hopes of a thaw after India and China agreed to a five-point plan to resolve the prolonged border face-off along the Line of Actual Control (LAC) in eastern Ladakh.

After opening flat at 11,447.80, the index hit an intraday high of 11,493.50 and a low of 11,419.90. The index ended 15.20 points higher at 11,464.50.

It formed a Doji candle on the daily charts while for the week, there was a hammer formation on the weekly scale. The index gained 1.2 percent for the week.

The formation of a Doji pattern after a bullish candle indicates indecisiveness among the bulls and the bears, as the index closed near the opening levels and bounces were being sold in the absence of follow-up buying interest.

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 that the stock tested its support, where demand was located and then bounced back.

Experts expect the rangebound trade to continue in coming sessions unless the Nifty gives a strong close above 11,550 levels.

Intraday traders should create short positions below 11,419 for modest targets placed in the 11,330 – 11,300 zone with a stop above intraday high, but long positions are not advisable unless the index closes above 11,550, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

"The smart recovery of the last three trading sessions from the low of 11,185 depicted a hammer kind of formation on weekly charts, hinting that the Nifty may trade sideways with a slightly positive bias," Mohammad said.

The near-term trend may remain confined to the 11,550–11,278 zone. However, strength in the Nifty can be expected on a close above 11,550, which can then expand the upswing towards 11,672 levels, he said.

If the index slips below 11,419 in the next trading session, then it can come under selling pressure, with targets placed in 11,327–11,298 zone. A close below 11,278 shall be considered an initial sign of weakness so as to resume downswing, he added.

India VIX fell by 2.58 percent from 21.26 to 20.71 level.

The options data suggests that the Nifty can see a wider trading range of 11,200-11,700 in the coming sessions.

On the options front, maximum Put open interest was seen at 11,000 followed by 10,500 strike, while maximum Call open interest was at 11,500 followed by 12,000 strike. Call writing was seen at 12,000 then 11,500 strike while Put writing was seen at 11,300 then 11,400 strike.

The Bank Nifty also traded in line with the benchmark indices. After opening marginally higher at 22,509.95, the index rallied to an intraday high of 22,668.75 but remained rangebound for the rest of the session and touched an intraday low of 22,205.95 in the afternoon.

The index gained 13.80 points to close at 22,480 and formed a Doji pattern on daily charts. However, it fell 2.3 percent for the week and witnessed a bearish candle on the weekly scale.

"The Nifty Bank has got stuck in a wider trading range between 22,222  and 22,650 levels for the past two trading sessions. Now it needs to hold above 22,500 to witness some stability and a move towards 22,750 and 23,200 levels. However, a hold below 22,222 could drag the rate-sensitive index towards 21,750," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in Wipro, Tech Mahindra, Hero MotoCorp, Jubilant FoodWorks, Hindustan Unilever and TCS while weakness was seen in IndusInd Bank, Coal India, HDFC Bank, Power Grid and Bharti Airtel, he added.