Technical View: Nifty forms Bearish Belt Hold pattern, 8,750 key for further downtrend
The Nifty corrected sharply on May 18, falling more than 300 points despite strong global cues, as details of Rs 20-lakh-crore stimulus package seem to have disappointed the market. The acceleration in coronavirus infections in the country also weighed on sentiment.
The index corrected for the third consecutive session and formed a bearish candle that resembled a Bearish Belt Hold formation on daily charts.
A bearish belt hold is formed when the opening price becomes the highest point of a trading day and the index declines throughout the session, making the large body. The candle will either have a small or no upper shadow and a small lower shadow.
Given the kind of fall in a single day, experts expect the index to correct up to 8,750, which is a key level. But if it breaks it, then the index can slip below 8,500, they say.
The Nifty50 opened moderately higher at 9,158.30, which was also the intraday high, but immediately slipped into the red and gradually extended losses to hit the day’s low of 8,806.75. The index closed at 8,823.25, down 313.60 points, or 3.43 percent.
“With this decisive breakdown of a minor trading range between 9,350 – 9,043 kinds of levels, with a Bearish Belt Hold candle, a 300-point fall can be easily projected with initial targets present around 8,750 levels,” said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in.
Also Nifty50 appears to have decisively registered a breakdown below its 20-day old consolidation formation, which resembled a Head and Shoulders bearish reversal pattern, he said.
A Head and Shoulders pattern comprises a rally, which ends a fairly extensive advance. It is followed by a reaction on less volume. This is the left shoulder.
The head is comprised of a rally up on high volume exceeding the price of the previous rally. And the head is comprised of a reaction down to the previous bottom on light volume.
The right shoulder comprises a rally up which fails to exceed the height of the head. It is then followed by a reaction down.
If the right shoulder does not reach the height of the left shoulder, this indicates that the fall could be even more severe, experts feel.
“If the bear market rally from the lows of 7,511–9,889 is presmumed to have ended with an intermediate top placed around 9,889 levels then the ensuing fall shall result in much bigger price damage with ultimate targets placed around 7,980 levels over the next couple of weeks,” Mohammad said.
However, upsides shall remain capped at around 9,160, he added. He advised traders to make use of pull-back attempts in the 8,900–8,950 zone to create fresh shorts and look for a initial target of 8,500 levels with a stop above 9,050 on closing basis.
Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas, also said the chart set- up suggested that the selling pressure would likely continue and the index can tumble down significantly.
“Once the level of 8,800 is breached, 8,400 will be the next key level to watch out for,” he said.
The major selling pressure was also seen in broader markets with the Nifty Midcap index down 4.5 percent and Smallcap index falling 3.3 percent.
The Bank Nifty fell from the word go, as it opened at 18,795.10 and gradually extended losses to hit the day’s low of 17,514.20.
The index settled at 17,573.20, down 1,260.75 points or 6.69 percent, and formed a Bearish Belt Hold pattern on daily charts.
“The Bank Nifty continued to make Lower Highs- Lower Lows for the third consecutive session and closed at lowest level since April 7. RSI also turned downward from its resistance zone on both daily and weekly chart, indicating weakness in the index,” said Chandan Taparia, Vice President, Analyst-Derivatives, Motilal Oswal Financial Services.
“Looking at the current structure, till the time it sustains below 18,000, we may see selling pressure towards 17,200 then 16,500 -16,100 zone Wwhile resistance can be seen at 18,500 and then 19,100-19,350 zones,” he added.
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