Thursday, 23 March 2017

Tech View: Nifty forms a bearish candle; crucial support seen at 8,975

The Nifty which closed below its crucial support level of 13-days EMA placed at 9,038 made a bearish candle which closely resembles that of an ‘Inverted Hammer’ on the daily candlestick charts.

The tussle between the bulls and the bears went for the fourth consecutive day in a row but this time bears managed to overpower bulls as Nifty recorded its biggest fall of the year on Wednesday.

The Nifty which closed below its crucial support level of 13-days EMA placed at 9,038 made a bearish candle which closely resembles that of an ‘Inverted Hammer’ on the daily candlestick charts.

A bounce back could well be on the cards because the index is trading close to its crucial support levels. Investors should not go short in this market till the time it holds above 8,975, while a close above 9075 could start the uptrend again, suggest experts.

“If the Nifty manages to cross and hold above 9,075 then only we may see a move towards 9,119 then 9,160 while on the downside next supports are seen at 8,980 then 8,920 levels,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.com.

The Nifty witnessed a sharp down move after hitting its record high of 9,218 on 17th March. Inverted Hammer is a bullish reversal pattern and can be characterised by a long upper shadow and a small real body, appearing after series of bearish candles.

In the exact ‘Inverted Hammer’ type of candle formation the close, open and low are roughly at the same level. However, in Wednesday’s price action small lower shadow was visible.

“The Nifty registered inverted hammer kind of formation as it witnessed selling pressure after an attempt to recover post gap down opening. Usually, this kind of formation if followed by higher opening and bullish candle in next trading session signals trend reversal,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.com.

The Nifty opened at 9,047.20 and slipped to an intraday low of 9,019.30 which made a small lower shadow. It recorded an intraday high of 9,072 which made long upper shadow and closed at 9,030.45

In theory, a confirmation can be seen in the form of next day’s candle formation. If the candle is above hammer's body in the form of a white candle with higher prices then long positions can be initiated.

The Nifty is trading close to its lower boundary of a channel support and inside the critical gap zone of 9,060 – 8,975 registered on 14th March. Hence, a bounce back cannot be ruled out because these levels will act as crucial support for the index.

“It is critical for Nifty to register a bullish close in next trading session to prevent further damage. A bounce from the gap zone can’t be ruled out in immediate trading session whereas a failure to sustain above 8,975 on closing basis shall pull the indices into the bear grip for prolonged period in near term,” he said.
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