Technical View: Nifty forms strong bearish candle, falls below 10,900; crucial support seen at 10,785

October 03
18:28 2018

The market caught in bear trap on Wednesday as the Nifty50 after gap down opening extended losses as the day progressed and decisively broke the 10,900 levels in last hour of trade. Traders turned cautious ahead of Monetary Policy Committee’s rate decision due on Friday after rupee hitting record lows and crude touching multi-year highs.

The index closed sharply lower and formed strong bearish candle on the daily charts. If it doesn’t stabilise around its 200-day EMA of 10,785 levels then more selling pressure is likely, experts said.

The Nifty50 after gap down opening at 10,982.70 followed by further selling pressure managed to recover a bit from day’s low in the middle of session, but started falling sharply in last hour of trade again and broke 10,900 as well. The index closed 150 points lower at 10,858.30.

“Bears appear to have gained upper hand as they sabotaged the good work done by the bulls in the Monday’s session before signing off the day with a strong bearish candle which forced the indices to close below 10,900 levels which bulls were defending till now on closing basis,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

According to him, in forthcoming sessions if Nifty50 doesn’t stabilise around its 200-Day EMA of 10,785 levels then traders should prepare themselves to see the index heading towards 10,557 levels.

He said on the upsides bulls will able to revive their chances of coming back provided they manages a close above psychologically important 11,000 levels. “Till then stakes shall remain in favour of bears with chances of Nifty heading towards 10,555 levels.”

India VIX moved up by 8.16 percent at 18.21 levels. Volatility is not cooling down which is not giving the relief and suggests a tight bear grip in the market, experts said.

On option front, maximum Put open interest (OI) is at 10,500 and 10,800 strikes while maximum Call OI is at 11,500 followed by 11,200 strikes. Put writing is at 10,700 and 10,500 strikes while Call writing is at 11,000 to 11,300 strikes. Option band signifies a shift in lower trading range with immediate hurdle at 11,000 zones.

“Nifty is trading at deep oversold territory but resistances are not being surpassed which is causing selling pressure from bounce back move. It is near to its 50 percent retracement of the entire up swing from 9,952 to 11,760 zones and if 10,850 is not respected then it may drift down towards 61.80 percent retracement which comes at 10,650 zone,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.

He said now the index has to hold above 10,850 zones to witness a bounce towards 10,929 and 11,000 zones while a failure move beyond first hurdle and holds below 10,850 could open its downside towards 10,700 and 10,650 zones.

Bank Nifty failed to surpass 25,500 and corrected towards 25,000 zones. It has been consolidating in between 24,700 to 25,500 zones from last six trading sessions. The index closed 297 points lower at 25,069.90.

“It has to continue to hold 24,700 zones to attract support based buying while 25,500 then 25,650 zones could continue to act as an immediate hurdles zones,” Taparia said.

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