Technical View | Nifty breaks 200 DEMA amid caution ahead of Fed meet


The Nifty50 extended its southward journey for the second consecutive session on July 26 and formed a bearish candle on the daily charts as traders were cautious ahead of the Federal Reserve meeting. The index has broken its 200-day exponential moving average (EMA – 16,520). If it fills the gap area created on July 20 (16,360-16,490) and decisively breaks 16,360 levels, then the selling may continue till 16,100-16,000, experts said.

All sectors participated in Tuesday’s correction with IT falling the most – 2.8 percent ahead of Fed’s commentary. Nifty Auto, FMCG, Pharma and Realty indices were down more than one percent each.

The pressure was more in broader space as the Nifty Midcap 100 index dropped 1.25 percent and Smallcap 100 index declined 1.5 percent on weak market breadth. Nearly three shares declined for every share rising on the NSE.

The Nifty50 opened flat at 16,632.90 and corrected up to around 16,500. The index showed a smart recovery to hit a day’s high of 16,636 in the afternoon, but again wiped out all those gains in the last couple of hours of trade and declined up to 16,463. Finally, it settled with 147 point- loss at 16,484.

“Market participants seem to be nervous ahead of the major economic event and hence appear to have lightened up their positions as the index registered a robust bear candle. In this process, it not only closed below the 200-day EMA but also partly bridged the bearish gap registered on July 20,” Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia said.

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Hence, in the next session, he said if the index fails to sustain above 16,359 levels, then technically the weakness shall extend further towards 16,100 levels.

However, the short-term trend will be influenced by the Fed’s decision.

Therefore, the market expert advised traders to focus on the larger trends and there can be some hope of recovery if the index manages to sustain above 16,000 levels post the Fed outcome.

The volatility also moved past 18 mark, making bulls more uncomfortable. India VIX, the fear index increased by 2.77 percent to 18.17 levels.

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Oscillators also indicated the sentiments are negative in the market ahead of big economic event as the RSI (relative strength index) fell below 60 levels, and Stochastic dropped below 80 levels.

On Option front, we have seen maximum Call open interest at 17,000 strike followed by 16,600 strike while there was maximum Put open interest at 16,000 strike followed by 16,400 strike. Call writing was seen at 16,600 strike then 16,700 strike while Put writing was seen at 16,100 then 16,400 strike.

After correction in two days, the trading range for the Nifty50 in coming sessions, indicated by the Option data, has shifted lower now to 16,200-16,800 levels, from 16,400-17,000 levels earlier.

Bank Nifty opened negative at 36,688.55 and slipped below 36,350 levels in the initial tick. It was accompanied by some rangebound move in the rest of the session and finally closed with losses of 318 points at 36,408.50.

The banking index formed a Bearish candle on daily scale and also there was Evening Star kind of pattern formation on the daily charts. Evening Star, a bearish candlestick pattern, is generally known for trend reversal.

Now, till it holds below 36,666 levels, it may see weakness towards 36,250 and 36,000 levels, whereas hurdles are placed at 36,666 and 36,750 levels, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Among stocks in the futures & options segment, we have seen a positive setup in Bajaj Finserv, Sun TV Network, PVR, JSW Steel, Bank of Baroda, Page Industries, DLF, Grasim, Coal India, Bharti Airtel, City Union Bank, and Adani Enterprises.

However, weakness was seen in L&T Technology Services, Max Financial Services, Oracle Financial, Mindtree, L&T Infotech, Infosys, Jubilant Foodworks, Glenmark Pharma, Indian Energy Exchange, Aurobindo Pharma, Dr Reddy’s Laboratories, Indraprastha Gas, Divis Labs, Mahanagar Gas, TCS, and Ashok Leyland.

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