Technical View: Nifty forms bearish candle but holds 200-DMA; stay away from short term bets

December 06
03:15 2018

The Nifty50 closed lower in line with the weak global cues and fell 87 points on Wednesday after RBI monetary policy, continuing downtrend for second consecutive session. But the index managed to hold 200-daily moving average.

The 200-DMA, which is placed around 10,747, is a crucial level for the index; if the index decisively breaks the same then there could be sharp correction, experts said, adding traders should stay away from taking short term bets.

The Nifty50 after opening lower at 10,820.45 extended losses as the day progressed and hit an intraday low of 10,747.95 in late trade, followed by a bit of recovery. The index closed 86.60 points lower at 10,782.90 as traders maintained cautious stance ahead of states elections results due next week.

“Inline with the weak global cues, Indian bourses appears to have registered a gap down opening before signing off the session with a bearish candle which resembles a ‘Bearish Belt Hold formation. However, Nifty50 found some support and bounced back as it tested its 200-day moving average with intraday low of 10,747,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

Going forward, according to him, if indices decisively breach its 200-day moving average, whose value is placed around 10,749, then this correction will eventually get extended towards 10,489 levels.

He said on the upsides strength will not be resumed unless Nifty50 registers a close above 10,941 levels.

Meanwhile, as we are heading close to an important binary event traders will be better off by staying away from short term bets atleast till Friday, he added.

India VIX moved up by 1 percent to 18.29 levels. However it has to cool down below 17-16 zones to get the smooth ride to surpass immediate hurdle zones.

On the option front, maximum Put open interest (OI) was at 10,000 followed by 10,500 strikes while maximum Call OI was seen at 11,000 followed by 11,500 strike.

Call writing was seen at 11,000 followed by 11,500 strike while marginal Put unwinding was seen at most of the immediate strike price.

Option band signifies an immediate trading range in between 10,700 to 10,950 zones, experts said.

“The index formed a bearish candle and started to form lower highs from last two sessions. It closed near to crucial zone of 10,777 and needs to hold the same to witness an upmove towards 10,880 then 10,929 levels while a hold below 10,750 could open the profit booking decline towards 10,650 zones,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services said.

Bank Nifty index remained volatile throughout the session and slipped towards 26,444 marks. However it recovered marginally from lower levels but formed a bearish candle on daily scale. It closed 159.25 points lower at 26,534.55.

Chandan Taparia said the index started to form lower highs from last two sessions and recently seen hurdle near to 27,000 zones.

It has broken immediate support of 26,666 and needs to surpass the same to get a short term stability to retest higher zones while on the downside support exists at 26,400-26,350 levels, he added.

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