Technical View: Nifty forms ‘Hammer’ kind of candlestick pattern; 10,550 crucial for bulls

Kshitij Anand

The Nifty50 which started on a mild negative bias failed to build momentum and bears were successful in pushing the index below its crucial support level placed at 10,600. The index made a ‘Hammer’ like pattern on the daily candlestick charts on Tuesday.

A Hammer which is a bullish reversal pattern is formed after a decline while a Hanging Man is a bearish reversal pattern. A Hammer consist of no upper shadow, a small body, and long lower shadow.

The long lower shadow of the Hammer signifies that it tested its support where demand was located and then bounced back. The index bounced back near its 50-EMA placed around 10,549.

Investors are advised to remain cautious and a decisive breach of 10,550 in the week could well put bears in the driving seat, suggest experts. On the other hand, a close above 10,620 could put bulls in a fighting position.

The Nifty50 which opened at 10,630 rose marginally to hit an intraday high of 10,633.15. Bears took control in the second half and pushed the index below 10,600 to hit an intraday low of 10,550. The index closed 35 points lower at 10,593.15.

“The Nifty50 registered a ‘Hammer’ kind of formation as it recoiled after testing its 50 Day EMA. In this process, it also appears to have achieved its initial targets after slipping below 10,558 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Now, interesting observation is that if the corrective structure is in progress from the highs of 10,717 registered on the 29th of May, the pullback move from the lows of 10,417 registered on 23rd of May has not ended at a recent high of 10,770 levels then in Elliot Wave parlance this correction should end below 10,558 in the form of an Expanded Flat there by paving the way for continuation of pull back rally beyond 10,770 levels,” he said.

Mohammad further added that contrary to this optimistic scenario if the downswing continues and decisively breaches 10,550 levels then it should head all the way down towards 10,400 levels. Till more clarity emerges about the direction traders are advised to take a neutral stance on the indices.

India VIX fell down by 4.03 percent at 13.32 levels. On the options front, maximum Put OI is placed at 10,200 followed by 10,600 strikes while maximum Call OI is placed at 11,000 followed by 10,700 strikes.

Fresh Put writing was seen at 10,400 and 10,500 strikes while Call writing is seen at 10800 and 10600 strikes. “Options data suggests a broader trading range in between 10550 to 10700 zones for next coming sessions. The buying interest was seen at lower levels in last hour of the trading session and it formed a long lower shadow candle on the daily scale as it managed to respect crucial support of 10550 levels,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.