Technical View: Nifty forms bearish candle, MACD gives a #39;sell#39; signal
The Nifty attempted a pull-back amid volatility but a selloff in the late trade dragged the index to close near the day’s low on October 7, as worries over the September quarter earnings and broader economy remain.
The index closed lower for the sixth consecutive session to form a bearish candle on the daily charts.
A small bearish candle is formed when the index trades in lower or within a defined range for most part of the trading session. The length of the candle signifies the range for the day. It would have a small body and typically equidistant lower and upper shadow.
After opening higher at 11,196.20, the Nifty attempted a pullback near its 200-day exponential moving average, which is placed at 11,218 and hit an intraday high of 11,233.85, but got caught in bear trap in late trade and hit the day’s low of 11,112.65. The index closed 48.40 points lower at 11,126.40.
The index managed to hold its crucial support of 11,100, but if it breaks it then there could be sharp selling pressure in the coming sessions, experts says.
Bulls have one more reason to worry as the Moving Average Convergence and Divergence, popularly known as MACD, gave a ‘sell’ signal on the daily charts for the first time since September 19.
While the market has moved higher even though MACD gave a sell signal, but still it is a negative indicator and cannot be ignored.
“Bears continued their domination, as the intraday day pull back attempt towards its 200-day exponential moving average (11,218) was encountered with a selling pressure. In this process the index appears to have decisively closed below all its critical medium to long-term moving averages, which is also accompanied by a sell signal on the daily MACD chart, thereby, strengthening the bearish sentiment further,” Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
He said 11,100 appeared to be the critical support on closing basis and breach of which would confirm the failure of the recent breakout, as the index spent considerable amount of time in the 10,700–11,100 zone before a breakout.
In such a scenario, on the downside, a new target of 10,875 would open up, Mohammad said.
Upsides would remain capped around 11,400 and rallies towards 11,200 would be considered an opportunity to create fresh short positions, with a stop above 11,235 on closing basis, he said.
The market will remain shut on Tuesday for Dussehra.
Option data suggests a shift in the Nifty’s lower trading range in between 11,000 and 11,600 levels.
Maximum put open interest is at 11,000 followed by 10,800 strike, while maximum call open interest is at 11,500 followed by 12,000 strike. Call writing was seen at 11,500 followed by 11,800 strike, whereas marginal put writing was seen at 11,000 then 10,900 strike.
The India VIX moved up by 1.42 percent at 17.83 levels. Higher VIX indicates that volatile swings are likely to continue in near term.
The Bank Nifty opened positive and extended its gains towards 28,200 in the first half of the session. However, it wiped out all the gains and drifted towards 27,750 to form a bearish candle on the daily scale, as follow-up buying was missing at higher zones. The index gained 0.13 percent to close at 27,767.55.
“Resistance are gradually shifting lower and now till it holds below 28,000, weakness could be seen towards next support of 27,500 then 27,250 levels, while on the upside, a hurdle is seen at 28,250 then 28,500 levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.