Tech view: Nifty forms Hanging Man; trend reversal is possible
, ETMarkets.com|
Updated: Nov 03, 2017, 04.50 PM IST
It seems the bulls are not going to let go of the momentum easily. The Nifty index recovered from an intraday low of 10,403 and closed above the 10,450 mark for the first time ever on Friday. In the process, the index formed a ‘Hanging Man’ pattern on the daily chart.
The Nifty opened the session at 10,461, which also turned out to be its intraday high. Before closing 0.33 per cent higher at 10,458, the index hit an intraday low of 10,403.
A ‘Hanging Man’ pattern is a bearish reversal candlestick pattern that gets formed at the end of an uptrend. It is formed when the index witnesses significant downside in early trade but the bulls manage to push it back to the opening level.
In a perfect ‘Hanging Man’ pattern, there will be a small or no upper shadow. It would also have a long lower shadow with a small body. The formation of a ‘Hanging Man’ candle in an uptrend indicates a possible trend reversal or top formation.
The Nifty50 formed a ‘Hanging Man’ kind of formation, which at times may result in a pause in the rally going forward, said Mazhar Mohammad, Chief Strategist for Technical Research & Trading Advisory, Chartviewindia.in.
“When we look at different technical parameters, it looks like it will be too early to call for such a pause in the ongoing rally, unless the market sees rangebound movement in the immediate next session,” Mohammad said.
“Besides, weekly price action was quite encouraging with a decent bull candle. Hence, further upsides can’t be ruled out in the near term and traders are advised to trail their stop loss below the 10,400 level on closing basis and look for 10,600 kind of levels,” Mohammad said.
On the options front, maximum Put open interest stood at strike price 10,000 followed by 10,200 while maximum Call open interest was at 10,500 followed by 10,400.
“We have seen fresh Put writing at 10,400, 10,300 and 10,000 while fresh Call writing was seen at 10,600 and 10,800,” said Chandan Taparia, Derivatives & Technical Analyst, Motilal Oswal Financial Services.
Call writing remained intact at 10,500, which acted as an immediate barrier, while fresh Call writing suggested extension of this bounce. Now Call unwinding at strike price 10,500 could give more conviction for an upside in the market.
India VIX slipped 0.64 per cent to 11.9275 and lower volatility supported the overall bullish undertone with buying interest on every decline.
Milan Vaishnav, Technical Analyst, Gemstone Equity Research and Advisory, said the market traded in the overbought zone on both daily and weekly charts and lead indicators continued to report bearish divergence on both time frame charts.
To add to this, the Nifty continued to face resistance at the 19-month-long trend line, which is the upper end of the rising channel that the index has been trading in.
“On Monday and over the coming days, we may see Nifty consolidate further. Despite being overbought and signs of fatigue in the lead indicators, the downside may be limited because of existence of shorts in the system. But there will resistance on the upside with each marginal high. The market will continue to remain highly stock specific,” said Vaishnav.
The Nifty opened the session at 10,461, which also turned out to be its intraday high. Before closing 0.33 per cent higher at 10,458, the index hit an intraday low of 10,403.
A ‘Hanging Man’ pattern is a bearish reversal candlestick pattern that gets formed at the end of an uptrend. It is formed when the index witnesses significant downside in early trade but the bulls manage to push it back to the opening level.
In a perfect ‘Hanging Man’ pattern, there will be a small or no upper shadow. It would also have a long lower shadow with a small body. The formation of a ‘Hanging Man’ candle in an uptrend indicates a possible trend reversal or top formation.
The Nifty50 formed a ‘Hanging Man’ kind of formation, which at times may result in a pause in the rally going forward, said Mazhar Mohammad, Chief Strategist for Technical Research & Trading Advisory, Chartviewindia.in.
“When we look at different technical parameters, it looks like it will be too early to call for such a pause in the ongoing rally, unless the market sees rangebound movement in the immediate next session,” Mohammad said.
“Besides, weekly price action was quite encouraging with a decent bull candle. Hence, further upsides can’t be ruled out in the near term and traders are advised to trail their stop loss below the 10,400 level on closing basis and look for 10,600 kind of levels,” Mohammad said.
On the options front, maximum Put open interest stood at strike price 10,000 followed by 10,200 while maximum Call open interest was at 10,500 followed by 10,400.
“We have seen fresh Put writing at 10,400, 10,300 and 10,000 while fresh Call writing was seen at 10,600 and 10,800,” said Chandan Taparia, Derivatives & Technical Analyst, Motilal Oswal Financial Services.
Call writing remained intact at 10,500, which acted as an immediate barrier, while fresh Call writing suggested extension of this bounce. Now Call unwinding at strike price 10,500 could give more conviction for an upside in the market.
India VIX slipped 0.64 per cent to 11.9275 and lower volatility supported the overall bullish undertone with buying interest on every decline.
Milan Vaishnav, Technical Analyst, Gemstone Equity Research and Advisory, said the market traded in the overbought zone on both daily and weekly charts and lead indicators continued to report bearish divergence on both time frame charts.
To add to this, the Nifty continued to face resistance at the 19-month-long trend line, which is the upper end of the rising channel that the index has been trading in.
“On Monday and over the coming days, we may see Nifty consolidate further. Despite being overbought and signs of fatigue in the lead indicators, the downside may be limited because of existence of shorts in the system. But there will resistance on the upside with each marginal high. The market will continue to remain highly stock specific,” said Vaishnav.
