Bank Nifty forms hanging man candlestick pattern

The banking benchmark index Bank Nifty scale record high in the month of March 2019. Among its constituents, Punjab National Bank and Bank of Baroda were the top gainers in the month of March 2019. However, considering the daily time frame, the index has formed a reversal hanging man candlestick pattern. Additionally, the sectoral sentiment indicators suggest extreme overbought for the index as all the stocks are trading above its 200-day simple moving average, which suggest index is likely to witness some consolidation in coming days.

The hanging man candlestick patterns occur during an uptrend and warn that prices may start falling. The hanging man shows that selling interest is starting to increase. The hanging man pattern is just a warning. The price must move lower on the next candle in order for the hanging man to be a valid reversal pattern. This is called confirmation.

Going ahead, if the index slips below the Friday's sessions low of 30,235.90 and trades convincingly below this level, then there is a high probability that Friday's high point of 30,499.15 would become a temporary top for the index. There has been a negative divergence between the daily stochastic, daily RSI and the index price movement, which suggests limited upside.

Derivatives data suggests that among Bank Nifty Calls, the 31,000 strike price of April 4, 2019 weekly expiry is the most active call. Whereas among the Bank Nifty Puts, 30,000 strike price of April 4, 2019 weekly expiry is the most active Put. For the April 4, 2019 weekly series, the maximum open interest (OI) outstanding for Calls were at 31,000 strike price and that for Puts were at 30,000 strike price.