Technical View: Nifty forms Hammer pattern; volatility likely to continue amid US Presidential Election

The recovery in the last hour of trade helped the Nifty50 close in the green for the first time in the last four consecutive sessions on November 2. The index formed a small-bodied bearish candle which resembles a Hammer pattern on the daily charts.

The rally in banking & financials after ICICI Bank earnings lifted sentiment. The index strongly rebounded from around 50-day simple moving average which is placed at 11,555. According to experts, this will be a crucial point in the coming session.

Given the weak market breadth and the major event of US Presidential Elections tomorrow, the market may see some volatility.

Considering the major event ahead, Mazhar Mohammad of Chartviewindia.in advised traders to remain neutral on the long side whereas positional shorting can be considered on a close below 11,535 levels for bigger targets.

The volatility has been moving upwards from the last four consecutive weeks ahead of the elections. India VIX moved up by 1.85 percent from 24.75 to 25.21 levels today.

The Nifty50 opened higher at 11,697.35, but failed to hold gains and tumbled into the red within few minutes. It hit a day's low of 11,557.40 but managed to get back in the positive territory in the last hour of trade to hit an intraday high of 11,725.65, before closing 26.80 points higher at 11,669.20.

"Nifty50 appears to be stabilising around its 50-day moving average as it smartly recoiled after testing the said average for the second day in a row with a long lower shadow which resulted in Hammer formation. Despite this intraday recovery, the advance-decline ratio remained in favour of bears hinting at pain in broader markets," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

Moreover, as markets are heading for a major event it may continue to remain volatile and choppy, he feels.

Nevertheless, if bulls manage to defend 11,500 levels for next couple of trading sessions then a sustainable up move can be expected in markets and the near-term bullish sentiment shall get strengthened on a close above 11,750 levels.

However, if the index closes below 11,500, then it shall accelerate the pace of fall with initial targets of 11,000, Mazhar said.

Maximum Put open interest was at 11,000 followed by 11,500 strike, while maximum Call open interest was at 12,000 followed by 12,500 strike. Marginal Call writing was seen in 11,600 and 12,100 strike while Put writing was seen at 11,000 then 10,800 strike.

The abovementioned option data indicated that the Nifty could remain in a wider trading range of 11,400 to 12,000 levels.

Bank Nifty opened strong at 24,367.60 and hit an intraday high of 25,139 as it negated the formation of lower highs of the last three trading sessions. The index outperformed the Nifty50 and rallied 991.60 points or 4.15 percent to close at 24,892.50, forming a bullish candle on the daily scale.

"The index has to continue to hold above 24,750 to witness an up move towards 25,500 while immediate key support is seen at 24,500 then 24,250," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in Cholamandalam Investment, Havells, Axis Bank, Ashok Leyland, Bajaj Finance, HDFC Bank, Marico, Voltas, Escorts and Kotak Mahindra Bank while weakness was seen in Reliance Industries, Eicher Motors, UPL, Aurobindo Pharma and TCS, he added.