Tech view: Bulls pause as Nifty50 forms ‘Hanging Man’ pattern

NEW DELHI: The Nifty50 on Wednesday staged a smart bounceback after falling towards its 200-day moving average placed around the 7,868 level before signing off for the day slightly higher. This resulted in the formation of a ‘Hanging Man’ pattern for second consecutive day, signalling indecisiveness.

The index had made a Hanging Man kind of pattern on Monday too, and a similar pattern got formed on Wednesday, which showed the bulls and the bears are locked in an indecisive battle and the market requires fresh triggers to either break down or break out of the current range.

A Hanging Man pattern on the candlestick is a bearish pattern and is usually formed at the end of an uptrend. Such indecisive patterns on the technical charts for two consecutive days indicate that the bulls might be losing momentum.

In a Hanging Man pattern, the market witnesses significant selloff towards the opening of a trading session but the bulls then manage to push the prices higher and the index closes near the opening price.




The Nifty50 opened at 7,950.05 and hit an intraday low of 7,877.55, thus forming a long down shadow. But there was no upper shadow on the charts as the intraday high was at Rs 7,950.40. The index recovered from its intraday low to close at 7,914.75 on Wednesday.

“The Nifty50 appears to have taken support close to its 200-day simple moving average before signing off the day slightly higher than Monday's closing price, but it is still below the day's opening price of 7,950, which resulted again in the formation of the 'Hanging Man' for the second consecutive day," Mazhar Mohammad, Chief Strategist - Technical Research & Trading Advisory, Chartviewindia.in told ETMarkets.com.

"This kind of price pattern clearly suggests that the bulls are ready for a pause as no further triggers are visible to carry on the momentum in the upward direction. Traders should be cautious and wait for a short-term downswing, which will get confirmed once the Nifty50 slips below the 7,868 level on a closing basis," he said.

Traders should not conclude that the bulls have lost control and go short on the index at current level. Instead, they should analyse chart patterns for the rest of the week. If the index slips below its 200-DMA, that should be taken as the first warning sign that the bulls might be losing grip.

"The Nifty50 has formed a reversal candlestick pattern for the second day in a row. The index is trading below the important resistance and psychological level of 8,000,” Vivek Gupta, CMT - Director Research, CapitalVia Global Research, told ETMarkets.com.

"If Nifty50 confirms Wednesday's reversal candlestick by giving a gap-down opening and closing below today's closing level, we can expect a short-term correction," he said.

Another important point traders should note is that despite sporadic upward move witnessed in the Nifty50, Nifty Bank is clearly underperforming as it is yet to cross its 200-day moving averages, experts said.

The index has rallied more than 1,100 points from the Budget day's low of 6,825 and on an immediate basis it has been making higher highs - higher lows in the past four trading sessions.

"Now, if the index fails to move above the 7,950-7,972 zone and slips below the 7,878 level, then a decline due to profit booking cannot be ruled out towards next major support in the 7,800-7,777 zone," Chandan Taparia, Derivatives & Technical Analyst - Equity Research at Anand Rathi Financial Services, told ETMarkets.com.