Technical View: Nifty forms Hanging Man pattern, 11,900 crucial level to watch

The Nifty50 remained volatile after opening lower but gained strength in the last hour to close above 11,950 on October 14. The rally in banking stocks amid hope for a favourable judgment in the interest waiver case lifted sentiment.

The index closed higher for 10th consecutive session and formed a bullish candle, which resembled a Hanging Man pattern on the daily chart.

A Hanging Man is a bearish reversal candlestick pattern, which is usually formed at the end of an uptrend or at the top (over 1,150-point rally from its recent closing low of 10,805 recorded on September 24). In a perfect 'Hanging Man' pattern there is a small upper shadow or no upper shadow at all, a small body and long lower shadow.

The rally will gain strength only if the Nifty50 closes above 12,020 levels, experts said.

Traders should avoid long positions unless the Nifty closes above 12,020, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol. Positional traders with a high-risk appetite can consider shorting on a close below 11,900, with a tight stop above 12,030 and look for much bigger targets, he said.

The Nifty opened lower at 11,917.40 and hit an intraday low of 11,822.15 amid volatility but gained strength in the last hour to touch the day's high of 11,997.20 before signing off at 11,971, the new seven-month high.

"Interestingly, close observation of last five sessions also reveals that the Nifty's movement is almost flat with narrow ranges and indecisive formations," Mohammad said.

Unless the Nifty registers a strong close above 12,022 levels, further upward strength shall not be expected, he said. A close below its 5-day simple moving average (11,916) can be considered as an initial sign of weakness.

If the index closes below 11,800, then it can accelerate the selling pressure by tilting the tide in favour of the bears thereby ushering in the much- needed correction, according to him.

If the Nifty registers a close above 12,022, then the upward swing can get extended towards 12,200, he said.

India VIX was down by 2.46 percent from 20.71 to 20.21 levels.

Options data indicated that the lower band of immediate trading range has shifted higher to 11,800 from 11,700 and the upper band remains unchanged at 12,100 zone.

On the options front, maximum Put open interest was at 10,500 followed by 11,000 strike, while maximum Call open interest was at 12,500 followed by 12,000 strike. Call unwinding was seen at immediate strike while Put writing was seen at 11,700 then 11,900 strike.

The Bank Nifty opened negative at 23,353.15 and remained consolidative till the last hour. It found multiple supports near 23,150-23,200 levels and then witnessed a spike of around 800 points towards 24,000 in last hour of the session.

The index climbed 382.50 points or 1.63 percent to close at 23,874.70 and formed a Bullish Engulfing candle and an outside Bar formation on the daily scale.

"The pattern formation clearly indicates that the bulls are using every decline to take the ride in the sector. Now it has to hold above 23,500 levels to witness an upmove towards 24,200 then 24,500 while on the downside key support exists at 23,200," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.