Technical View: Nifty forms Bearish Belt Hold; stay cautious as momentum is fading

May 04
17:28 2018

The Nifty50 which started on a strong failed to hold on to momentum and quickly pared gains on Friday and closed just above its crucial support level of 10,600 levels. The index slipped 0.69 percent for the week ended May 4.

Bears took control of the index from the word go and closed near its intraday low making a ‘Bearish Belt Hold’ kind of pattern on the daily charts. On the weekly charts, Nifty formed a bearish candle after closing in green for the past five weeks.

The index which broke below 10,650 took support at its 13-days exponential moving average (DEMA) to close at 10,618, down 61.40 points.

It opened at 10,700.45 which was also the intraday high and bears pushed the index near its crucial support placed around 10600 to hit an intraday low of 10,601.60.

Investors are advised to stay cautious as the weekly chart pattern suggests a pause in momentum at least for the time being. A firm close below 10600 could fuel selling pressure in the Nifty while a close above 10700 could put bulls back in charge of markets, suggest experts.

“The Nifty50 registered a Bearish Belt Hold formation to sign off the last session of the week suggesting pressure on the market from the word go. However, on the weekly charts the bearish candle, when read with positive close of preceding week, resembles a Dark Cloud Cover kind of bearish pattern which shall have negative repercussions going forward which will be confirmed if Nifty50 closes below 10600 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

“As the technical picture on the short-term charts is slowly tilting in favour of bears traders are advised to remain cautious as we enter into the news-driven week in the form of State election,” he said.

Mohammad further added that unless Nifty50 registers a strong close above 10,700 levels bulls will continue to remain under pressure as bears try to tighten up their grip on the markets once again.

India VIX moved up by 2.08 percent at 13.12. Volatility spiked up after the decline of last four weeks and requires a hold below 13.50 to get back the positivity in the market.

On the options front, maximum Put OI is placed at 10,500 followed by 10,400 strikes while maximum Call OI is placed at 11,000 followed by 10,800 strikes.

Fresh Put writing was seen at 10,400 and 10,500 strikes while Call writing was seen at 10,700 and 10,800 strikes.

“Option data suggests an immediate trading range between 10550 to 10750 zones. The Nifty made a Three Black Crows formation on the daily scale which implies Bears are taking a grip in the market at higher levels but the index is respecting to its support zones,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“It has been making lower highs – lower lows from last two sessions and now till it holds below 10638 weakness could be seen towards 10550 and 10500 zones while if it sustains above 10680 then upside could be seen towards 10780-10800 zones,” he said.

Taparia further added that Nifty has been making higher highs – higher lows on the weekly scale but closed negative after the five positive week which indicates a pause in positive momentum and requires a consolidation to start the next up move.

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