Technical View: Nifty forms Hanging Man pattern, 12,000 crucial for upside

The Nifty50 after a strong start failed to hold on to the psychologically important 12,000-mark following a correction in the afternoon but recovered in the last hour of trade to close higher for the fourth consecutive session on October 21. Banking & financials and metals stocks supported the market.

The index closed 40.9 points higher at above 11,937.7  but formed a small-bodied bearish candle that resembled Hanging Man pattern on the daily charts.

A Hanging Man is a bearish reversal candlestick pattern that is usually formed at the end of an uptrend or at the top. 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 index has to decisively go past the 12,000-mark till then there could be consolidation, experts said.

Considering the sharp swings in the market, traders should remain neutral by adopting a stock-specific approach and fresh buying opportunity will arise only on a close above 12,000, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

The Nifty50 started the day higher at 11,958.55 and hit an intraday high of 12,018.65 but witnessed some correction in the afternoon. It dropped to 11,775.75 but recouped losses in the last hour to close at 11,937.70.

Unless the Nifty gets past 12,025 on a closing basis, the trajectory of the market will remain downside, with a potential target of 11,661, Mohammad said.

In between, 11,775 can be considered as a significant support for the near term and a close the level can accelerate selling pressure, he said. However, a sustainable close above 12,000 will open up initial target of 12,225, he added.

The volatility has been rising for the last few sessions, possibly due to the US presidential elections on November3. India VIX moved up by 0.99 percent from 22.69 to 22.91 levels.

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 writing was seen at 12,200 then 12,500 strike while minor Put writing was seen at 11,900 then 11,700 strike.

Options data indicated an immediate trading range of 11,800-12,100 for the Nifty.

The Bank Nifty opened higher at 24,444.20 and hit the day's high of 24,823.60 but remained volatile. It fell more than 700 points from the day's high to the day's low of 24,099.85 but smartly recovered 500 points to close at 24,635, up 323.20 points or 1.33 percent.

The index has been making higher lows for the last four trading sessions and is holding well above the previous hurdle of 24,000.

"It formed a bullish candle with long shadow on the daily scale, indicating both the bulls and the bears were in a tussle but the bulls are quite active and using any decline as buying opportunity," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services told Moneycontrol.