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Technical View: Nifty forms a bearish candle; 10,750 likely to act as crucial support

September 03
17:29 2019

Bulls failed to keep the momentum going on September 3 as the Nifty broke below its crucial support placed at 10,900, and 10,800. The index formed a bearish candle, which also resembled ‘bearish belt hold’ pattern, on the daily charts.

The Nifty, which opened at 10,960, rose marginally to 10,967 before bears took control to push the index below 10,900, and 10,800 levels. It hit an intraday low of 10,772 before closing at 10,797, down 225 points.

The index is trading below all its crucial short-term moving averages such as 20-day moving average (DMA), 5-day exponential moving (EMA), and 13-day EMA, which is not a positive sign.

A ‘bearish belt hold’ pattern is formed when the opening price becomes the highest point (intraday high) and the index declines throughout the trading day, making up for the large body. The candle will either have a small or no upper shadow and a small lower shadow.

Selling pressure dashed hopes of any pullback rally and wiped out gains made in the week gone by. Crucial support is placed at 10,750 and below that 10,682-10,637.

“Market appears to have succumbed to the negative news flows, and unless some positive news flows kicks in, trend shall continue to favour bears and technically speaking 10,750 shall be considered as a critical support in the near-term, as a breach of this can threaten the recent corrective swing low of 10,637 levels,” Mazhar Mohammad, Chief Strategist, Technical Research and Trading Advisory, Chartviewindia.in, told Moneycontrol.

“At this point, if we presume that market has reversed its trend with a top in place around 11,141 levels, in that case, critical supports to watch out are placed between 10,592–10,546 levels,” he said.

Contrary to this assumption, strength in the Nifty can be expected on a close above 10,967 levels, he said. Considering the global volatility, it would be prudent on the part of traders to remain neutral on indices and stocks.

India VIX moved up sharply by 10.90 percent at 18.05 levels, which is not a good sign for the bulls. On the options front, maximum put OI is placed at 10,800, followed by 10,600 strikes, while maximum call OI is seen at 11,700, followed by 11,200 strikes.

Call writing was seen at 11,000, followed by 10,900 strikes, while minor put writing was seen at 10,800 and 10,600 strikes. Options data suggests a lower trading range in between 10,600 and 11,200.

The Bank Nifty continued its formation of lower highs, and lower lows from the past four trading sessions and corrected nearly 600 points to close below 27,000 zones.

It formed a bearish candle on the daily scale as sustained selling pressure was seen throughout the session. “Now till it holds below 27,250 zones, weakness could be seen towards recent swing low of 26,550 then 26,250 zones while on the upside hurdle is seen at 27,500 levels,” Chandan Taparia, Associate Vice President, Analyst-Derivatives, Motilal Oswal Financial Services, told Moneycontrol.

“The Nifty index formed a big bearish Candle on a daily scale as it closed with deep losses of more than 200 points. Resistance is gradually shifting lower and now till it holds below 10,950 zones, weakness could be seen towards next major support of 10,650–10,600 zones,” he said.

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