Nifty formed small bullish candle (as closing was above opening level) which resembles an Inverted Hammer pattern on the daily chart.
Nifty opened lower at 11633 and remained weak for the majority of the session to hit a day's low of 11606. Nifty attempted positive trade in noon up to 11744 but could not sustain for long. It finally settled at 11670, down 58 points.
An Inverted Hammer is a reversal pattern in which the index closes near its opening level. It has a long upper shadow, small or no lower shadow, and a small body.
The formation of an Inverted Hammer candle indicates a pause in bounce back if follow up supply happens in next trading sessions. However, it still requires confirmation.
Nifty extended losses for the second consecutive session and closed well below 11700 level, Expiry day for October F&O contracts. Volatility in global peers, rising coronavirus cases and the forthcoming US elections also kept sentiment jittery.
The continuation of pandemic in absence of a vaccine is creating a havoc and is playing out in fx market. The fear that economic conditions are going to get worse before they get better, is keeping the dollar strong against EM currencies. Adding to this mood is uncertainty of the US presidential election outcome. So, next week the chances of USDINR trading above 74 are higher and expect the spot pair to trade within 73.50-74.50.
Weak near term trends accompanied with strong negative global cues appear to have created havoc in the bourses as Nifty opened with a huge gap down but managed to close inside the trading range of 11661/12025 level before signing off the session with an Inverted Hammer formation with long upper shadow and a small candle body.
Hence, next trading session, it is critical for Nifty to sustain above 11606 level to continue consolidation in a rangebound move. However, even if Nifty slips below 11606 level then nearby support is available around 11540 level in the form of a 50day simple moving average.
Going forward, it remains critical for Nifty to sustain above the said average as a breach of this on the closing basis can trigger a sharp slide with eventual targets present between 11000/10900 level. Meanwhile on the upsides rallies can be curtailed close to 11750 level.
Best trade for intraday traders can be to short by making use of rally in the zone of 11720 /11745 level with a stop above 11775 and look for a modest target of 11620.
Except IT and energy, all other sectoral indices ended lower led by FMCG, pharma, metal and auto, Samllcap index shed 0.5 percent.
-Someshwar Technical analyst, Equidius Research
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