Technical View: Nifty forms bearish candle, strong rebound above 50-day EMA needed


Caught in the selling pressure in the last hours of trade, the Nifty50 broke the 50-day exponential moving average (EMA) to close a percent lower on March 18. Rising US bond yields, which climbed above 1.7 percent, after the Federal Reserve meeting dented market sentiment.

The index ended in the red for the fifth consecutive session and formed a bearish candle on the daily charts as closing was lower than opening levels. The Nifty has to rebound above 50-EMA to get in a strong mood, say experts.

The Nifty50 opened sharply higher at 14,855.50 and extended gains up to 14,875.20 only to wiped them all out in the afternoon to slip to the day’s low of 14,478.60. The index settled at 14,557.90, with 163.40 points or 1.11 percent loss.

Considering the oversold nature accompanied by the nearby support zone, traders should remain mere spectators by adopting a neutral stance in the next trading session, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia told Moneycontrol.

India VIX was down 0.40 percent from 20.15 to 20.08 levels. A decline in VIX even after a sharp correction is not giving any immediate clues, experts said.

The index decisively breached its 50-day exponential moving average, whose value is placed around 14,613 levels, with a wide trading range of 397 points. “Hence, unless it conquers its 50-day EMA with a sustainable close, any bounce towards the said average shall remain vulnerable for a sell-off in the near term,” Mohammad said.

On the downside, it seems to have neared the critical support placed at 14,469–14,336, he said. Any further extension of downswing shall ideally attract some buying interest in the said zone, he said.

Moreover, with five consecutive negative closes, from the highs of 15,336 levels, the market might have reached some sort of oversold levels, which should ideally pave the way for some relief rally as it nears the critical support zone, Mohammad said.

Options data indicated that the Nifty50 could keep moving in a wider trading range of 14,300-14,900 levels in coming sessions.

On the option front, maximum Put open interest was seen at 14,000 followed by 14,000 strike, while maximum Call open interest was seen at 15,000 followed by 16,000 strike. Call writing was seen at 15,000 then 14,800 strike while Put writing was seen at 14,200 then 14,100 strike.

The Bank Nifty opened positive at 34,577.50 and hit an intraday high of 34,759.85 but banking stocks failed to hold and the index breached 33,600 levels to hit the day’s low of 33,597.55.

The index has been underperforming the Nifty50 for the last few sessions and ended the day 372.50 points, or 1.09 percent, lower at 33,856.80. It has been making lower highs for the last four trading sessions and formed a strong bearish candle on the daily scale, indicating a tight bear grip.

“If the Bank Nifty remains below 34,500 levels, weakness could be seen towards 33,500 and 33,333, while on the upside, key hurdle is seen at 34,750 and 35,000,” Chandan Taparia, Vice President | Retail-Research at Motilal Oswal Financial Services said.

On the stock front, a bullish setup was seen in ITC, Bajaj Auto, Sun TV Network, InterGlobe Aviation, Hindalco, Grasim, Bharti Airtel and Torrent Power. Weakness was seen in Havells, Bank of Baroda, HCL Technologies, Balkrishna Industries, Aurobindo Pharma, Divis Labs, Ashok Leyland, Dr Reddy’s Labs, Indraprastha Gas, Federal Bank, MRF, Hero MotoCorp, Mahanagar Gas, Reliance Industries, Cipla and Torrent Pharma, he added.

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