Technical View: Nifty forms Inverted Hammer kind of pattern on F&O expiry day

Nifty on July 25 closed below the 200-day exponential moving average for the second session in a row and formed a bearish candle, akin to an Inverted Hammer kind of pattern.

Generally an Inverted Hammer in a downtrend is considered as a bullish reversal sign as long upper shadow is considered as the result of a pessimism surrounding the market due to downtrend which results in a sell-off at intraday highs.

Experts feel 11,229 could be crucial level for Nifty, if that breaks then there could be selling pressure but as index looks oversold, the bounce back can't be ruled out which can sustain if it holds 11,361 level.

Nifty started the last day of the July series on a positive note at 11,290.40 and hit an intraday high of 11,361.40, but caught in bear trap in late morning deals which dragged it to day's low of 11,239.35 amid volatility. The index closed 19.10 points lower at 11,252.20.

"Nifty registered yet another bearish candle and it resembles Inverted Hammer kind of formation with a slightly longer upper shadow as it witnessed selling pressure from intraday highs of 11,361 levels before signing off the expiry session. However, weakness in the index appears to be getting more pronounced as Nifty closed for the second session below its 200-day exponential moving average (11,296). If the index slips below 11,229, then it can come under renewed selling pressure with targets placed around 11,100," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

He further said in the absence of any buy signals on lower time frame charts, only solace for bulls at this point in time appears to be the fact that market has reached some sort of oversold levels with a vertical fall from the highs of 11,700 in last 6 sessions.

Hence, some pull back attempt can't be ruled out in the new series but strength in this regard will be confirmed only on a close above 11,361 levels and therefore traders are advised to remain neutral on long side but can look for intraday shorting opportunity if Nifty trades below 11,229 for at least 30 minutes, Mohammad added.

Since the beginning of the new series, Option data scattered at various strike price. Maximum Put open interest (OI) is at 11,000 followed by 11,200 strike while maximum Call OI is at 12,000 followed by 11,500 strike.

Put writing is at 11,000 and 11,200 strike while Call writing is at 11,500 followed by 11,800 strike. Options data suggests a broader trading range in between 11,000 to 11,650 zones.

India VIX fell by 2.39 percent to 12.45 levels.

Bank Nifty formed an Inside Bar on daily scale as it traded in the range of the previous day session but remained highly volatile for most part of the session. The index closed 90.80 points higher at 29,043.05.

"It managed to hold 28,888 zone but finding hurdle near to 29,250 zone. Resistances are gradually shifting lower and now till remains below 29,350 zones, weakness could continue towards its next support of 28,888 then 28,550 zones while on the upside major hurdle is seen at 29,350 then 29,500 levels," said Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services.