Technical View: Nifty forms Hanging Man pattern, focus on stock- specific opportunities

The Nifty50 held on to 13,000 for the most part of the day after early trade volatility and closed a percent higher on December 1 after the contraction in the economy eased in the second quarter. IT, metals, pharma, auto and select banking & financials also aided the rally.

The index opened higher at 13,062.20 and hit the day's low of 12,962.80 in early trade volatility but immediately gained strength and stayed above 13,000 for the rest of the session. It hit an intraday high of 13,128.40 before closing 140 points, or 1.08 percent, higher at 13,109.

The index formed a small-bodied bullish candle that resembled the 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 will be a small upper shadow or no upper shadow at all, a small body and long lower shadow.

The index is likely to continue in the 12,800-13,145 range unless the index decisively breaks out on either side, experts say.

As long side trade on the Nifty appears fraught with high risk, traders should remain neutral on the index, focussing on stock-specific opportunities, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol. A close below 12,858 can facilitate the dominance of the bears in the near term.

"A close observation of last 10 trading sessions price action reveals that the Nifty is struggling around the upper boundary of 40-day-old ascending channel which is in progress from September lows of 10,790 levels," Mohammad said.

Even if the bulls manage to pull the Nifty beyond the recent corrective swing high of 13,145, the upside seems to be limited in the 13,200–13,250 zone wherein the resistance from the upper end of the said ascending channel will again come into play, he said.

For a sustainable and run-away rally, the Nifty needs a close above the 13,250 following which a bigger expansion can be expected with an initial target of 13,500, Mohammad said.

India VIX was up by 1.83 percent from 19.82 to 20.18 levels. Lower volatility suggests that the bulls are in control and any decline is being bought, Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services said.

Options data is scattered at different strikes as it is the beginning of the new series. Maximum Put open interest was at 12,000 followed by 13,000 strike while maximum Call open interest was at 13,000 followed by 13,500 strike.

The data suggests a wider trading range for Nifty from 12,500 to 13,500, while an immediate trading range could be 12,900-13,250 levels.

The Bank Nifty opened positive at 29,844.80 but remained quite consolidative for most of the day. It witnessed a minor profit booking towards the end but the index settled the day with the gains of 208.75 points at 29,817.80 and formed a Doji candle on the daily scale.

"The index continues to form higher highs-higher lows on the lower time frame. It has to hold above 29,500 to witness an upmove towards 30,300 then 30,500 while support is seen at 29,200 and 29,000 levels," Taparia, said.