Technical View: Nifty forms a strong bearish candle; avoid long bets for now

June 04
18:28 2018

The Nifty50 which started on a positive note failed to keep the momentum going and reversed gains around it crucial resistance level placed around 10,770 on Monday and made a strong bearish candle on the daily candlestick charts which also closely resembles a Bearish Belt Hold kind of pattern.

Analysts advise investors to avoid long positions for now and stay on sidelines till Monetary Policy Committee (MPC) meet gets over. Hawkish commentary from the Reserve Bank of India (RBI) could lead to a knee-jerk reaction on D-Street.

The Nifty50 broke below its crucial short-term moving averages (13,5,20-EMA) and the next support is placed at 10,576, 10,558 levels on the downside. Bulls would only be able to take control over D-Street once Nifty closes above 10,770.

The Nifty50 which opened at 10,765 rose to an intraday high of 10,770.30. Bears took control over and pushed the index below 10,700, and 10,650 to hit an intraday low of 10,618.35. The Nifty finally closed 67.70 points lower at 10,628.50.

“The tide may be slowly tilting in favour of bears as Nifty50 was sold off from day’s high of 10,770 levels before signing off the session with a strong bearish candle formation. Interestingly for last three sessions bulls struggled to get past the level placed around 10,770 which shall now become a formidable resistance point on the upside,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory,

“Hence, unless this level is cleared upsides shall continue to remain capped and Nifty50 shall be heading to lower levels with initial targets placed around 10,558, and a breach of which shall further accelerate downward pressure on the markets,” he said.

Mohammad further added that based on the long-term trend projections it looks that the ideal destination for this downswing is placed below 10,419 levels to culminate one leg of the corrective structure. Short term traders are advised to avoid long side bets barring select few scrips where upside strength is clearly visible.

India VIX moved up by 2.30 percent at 13.88 levels. On the options front, maximum Put OI is placed at 10,600 followed by 10,200 strikes while maximum Call OI is placed at 11,000 followed by 10,700 strikes.

Fresh Put writing at 10,600 strikes while significant Call writing is seen at 10,700 and 10,800 strikes. “Options data suggests a broader trading range in between 10,550 to 10,750 zones for next coming sessions,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The Nifty index opened gap up but failed to hold above 10765 zones and corrected towards 10620 zones. It formed a Bearish Engulfing and a Bearish Belt Hold Candle on the daily scale as wiped out recent entire gains and remained under pressure throughout the session,” he said.

Taparia further added that if Nifty fails to hold its crucial support of 10,620 then weakness could be seen towards 10,550 while on the upside hurdles are seen at 10,680 and then towards 10,707 marks.

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