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Technical View: Nifty forms Bearish Belt Hold pattern, 11,087 crucial level to watch

July 27
18:28 2020

After opening higher, the Nifty50 immediately slipped into the red and remained in the negative terrain for rest of the day on July 27, hit by weak global cues amid US-China tensions and a steep fall in banks on RBI expecting an increase in bad loans this year.

The index closed below 11,150 and formed a Bearish Belt Hold pattern 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.

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Experts expect consolidation to continue and further weakness is seen in the market if the index breaks the day’s intraday low of 11,087.

As twin momentum oscillators are in sell mode, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in, asked traders to avoid long positions unless the Nifty closes above 11,250 levels. Shorting can be considered on a close below 11,050.

The Nifty50 opened higher at 11,225, which was also an intraday high, but was immediately caught in the bear trap to hit the day’s low of 11,087.85. The index closed at 11,131.80, down 62.40 points after rising 2.7 percent in previous week.

“The Nifty50 continued its rangebound move as it traded inside the newly chalked out consolidation zone of 11,240 – 11,056 levels,” Mohammad said.

“Moreover, at today’s intraday low of 11,087 levels, the index appears to have tested the ascending trendline, which is in progress from panic lows of 7,511 registered in last March. Hence, a breach of 11,087 in the next couple of sessions can be read as an initial sign of weakness, whereas confirmation for near-term trend reversal shall be expected on a close below 11,056 levels.”

In that scenario, initial targets on downsides can be the test of its 200-day simple moving average, whose value is placed around 10,862 levels and breach of said long term average shall further accentuate the selling pressure into the zone of 10,560 to 10,380 levels where critical short term support in the near term can be expected, he added.

Contrary to this, strength shall resume if the index closes above 11,240, with initial targets of 11,400, he said.

Options data suggests that the Nifty can see an immediate range of 11,000 to 11,400.

On the options front, maximum Put open interest was at 11,000 followed by 10,000 strike, while maximum Call open interest was at 11,500 followed by 11,200 strike. Call writing was seen in 11,200 and 11,700 strikes, while minor Put writing was seen at 10,900 and 10,950 strike.

The Bank Nifty opened flat at 22,664.60 but corrected sharply towards 21,800 during the day. The index fell 813.20 points, or 3.59 percent, to close at 21,848.80 and formed a Bearish Belt Hold candle with the formation of lower highs for last three trading sessions.

“The RSI indicator has given a sell signal by negative crossover on the daily scale. Now it needs to cross and hold above 22,000 to witness an upmove towards 22,500 then 22,750 levels while on the downside, support is seen at 21,500 levels,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.

“Positive setup was seen in Muthoot Finance ICICI Prudential Life Insurance, Asian Paints, Mindtree, Infosys, TCS, Tech Mahindra, Manappuram Finance while weak structure was seen in Equitas Holdings, Ujjivan Financial Services, ICICI Bank, InterGlobe Aviation, Bank of Baroda, PNB, Aurobindo Pharma, Exide Industries and Grasim,” he added.

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