Technical View: Nifty forms ‘Hanging Man’ pattern; trade with caution

The Nifty rallied for the ninth consecutive day in a row on Tuesday but the index failed to close above 10550 levels. It formed a ‘Hanging Man’ kind of pattern for the second time in the last four trading sessions which suggests caution.

The index registered a Hanging Man kind of pattern on 11th April and it recorded a similar pattern on Tuesday. A hanging man is a bearish candlestick pattern that gets usually formed at the end of an uptrend.

It is formed when bears take control at the beginning of the session but then buyers or the bulls were able to push the index near the opening levels towards the end of the session. The large selloff at the beginning of the markets could be seen as an indication that bulls might be losing control.

The Nifty50 which opened at 10557 slipped to an intraday low of 10495. It bounced back to hit its intraday high of 10560 before closing 20 points higher at 10,548.

Investors are advised to stay cautious but do not sell this market now and wait for some more confirmations. But, the recent price trend suggests that the momentum may be fading. Investors who are long can keep a stop loss below 10379.

“Bulls appear to be just dragging on their feet as Nifty50 registered a ‘Hanging Man’ kind of formation on candlestick charts suggesting exhaustion of momentum. Interestingly, this kind of pattern is emerging close to its critical resistance zone placed around 10600 levels after 9 consecutive positive closes,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Albeit there are no sell signals on short-term charts, some sort of consolidation or running correction can’t be ruled out in next couple of trading sessions as indices reaching overbought zones. Hence, it looks prudent for short-term traders to book profits and wait for either correction or a breakout above 10630 levels,” he said.

Mohammad further added that the trend will not favour bears unless Nifty50 closes below 10379 levels whereas a close above 10630 shall extend the current swing towards 10900 kinds of levels. Hence, as of now, any dip towards 10400 is looking like a buying opportunity.

On the options front, maximum Put OI was seen at 10400 followed by 10300 strikes while maximum Call OI was seen at 10700 followed by 10500 strikes.

Significant Put writing at 10500 and 10550 strikes which is shifting its support to higher side while minor Call Writing is seen at 10600 followed by 10700 strikes.

“Option band suggests an immediate trading range in between 10480 to 10650 zones. Nifty index formed a Hanging Man Candle on the daily scale which implies follow up buying is missing at higher levels,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“However it continued its higher highs formation from last twelve consecutive trading sessions which indicates that bulls are still holding the momentum in the market,” he said.