Technical View: Nifty forms ‘Hanging Man’ kind of pattern; next target seen at 10,200

Traders are advised not to base any decisions on Tuesday’s price action as the market is awaiting triggers from the outcome of the Reserve Bank of India’s policy outcome due on Wednesday.

The Nifty50 which hovered below 10,100 level for the most part of the trading session on Tuesday rose to a fresh record high of 10,128 in the last 30-minutes of trade making a bullish candle which looked like a ‘Hanging Man’ kind of pattern on the daily candlestick charts.

A Hanging Man is a bearish reversal candlestick pattern and is usually formed at the end of an uptrend (300-point rally from its recent low of 9,800 formed on 18 July). Although, the pattern still needs confirmation.

In a perfect 'Hanging Man' pattern either there will be a small upper shadow or no upper shadow at all, a small body and long lower shadow.

In this pattern, the index witnessed a significant sell off towards opening but bulls manage to push the index towards or above the opening level. In Tuesday’s session, Nifty closed slightly above its opening level.

The Nifty50 opened at 10,101.05 and slipped to an intraday low of 10,065.75. It gains momentum in the second half of the trading session which took the index to its record high of 10,128.60. The Nifty finally closed 37 points higher at 10,114.65.

Traders are advised not to base any decisions on Tuesday’s price action as the market is awaiting triggers from the outcome of the Reserve Bank of India’s policy outcome due on Wednesday.

There are no visible signs of a correction as of now; hence, any positive outcome could push the index towards fresh highs in Wednesday’s trading session. However, any adverse outcome could at best lead to a knee-jerk reaction.

The current trend suggests that there is further upside left in the index and a breakout witnessed in Tuesday’s session opens up the possibility of 10,200 in the coming sessions while a stop can be placed near its support of 9,950, suggest experts.

“The Nifty50 appears to have registered a Hanging Man kind of formation before signing off the day with a range bound move. This kind of sideways movement is suggesting that traders are awaiting the outcome of monetary policy based on which market shall chart its own course of action in the near term,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“However, technically speaking, as momentum is completely favouring bulls any positive announcement from the RBI shall push indices towards its next resistance point of 10228 levels,” he said.

Mohammad further added that if Nifty50 trades below its short term support of 10,068 levels for at least one hour in next trading session then it may build more selling pressure on an intraday basis which should push the indices below 10,000 levels.

On the options front, maximum Put OI was seen at strike prices 10,000 followed by 9,800 while maximum Call OI was seen at strike prices 10,500 followed by 10,400.

However, Call OI concentration is scattered at different strikes but shifting higher Call strike is giving the scope for a further upside.

“Fresh Put writing was seen at 10100 and 10000 strike which suggests that Put writers are keeping the tight grip on the market to push it to higher zones,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“On the technical front, Nifty index formed a Bullish candle with the long lower shadow which indicates that every small decline is being bought in the market,” he said.

The index has been respecting to its rising support trend line by connecting the recent swing lows of 9543, 9646, 9838 and 9944. “Now, the index has to continue to hold above 10,050 to witness a fresh up move towards 10,200-10,250 zones while support are shifting higher to 10,020 and 9,950 mark,” he said.