Technical View: Nifty forms Bearish Belt Hold pattern; closes below 50-Day EMA

The Nifty50 broke below its crucial support at 11200 levels on Tuesday, and also the 50-Day Exponential Moving Average placed at 11,192 that suggests further pain for the bulls. It formed a bearish candle that resembles a Bearish Belt Hold kind of pattern on the daily charts.

The index which opened on a positive note above 11300 levels failed to hold on to gains and retested 11,000 levels before bouncing back. The recovery seen in the second half of the trading session suggests bulls are not ready to give up easily.

Experts are of the view that as long as Nifty50 trades below 11300 levels, the selling pressure could continue and that could take the index towards 10950-11000 levels. The market texture is now a sell on rallies kind of market.

Correction of the last 16 sessions appears to be chalking out a descending channel with support placed around 11040 levels. As Nifty is nearing the said channel support, a bounce in the next trading session can’t be ruled out, suggest experts.

“The Nifty50 appears to have registered a Bearish Belt Hold kind of formation as it continued its selling pressure for 4th session in a row. However, such a bounce itself shall not be construed as end of the ongoing correction,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“The current trend is in favour of bears such bounces may become fertile grounds for bears to make fresh attacks. In case if the support of 11k, on a closing basis, is breached then one should prepare for a bigger correction while the initial target may remain the test of its 200-day exponential moving average whose value is placed around 10800 levels,” he said.

Mohammad said the strength and stability in Nifty will not be expected unless it sustains above its 50-Day simple moving average and registers a close above 11300 levels.

Till then such rallies shall remain vulnerable for a sell-off. Mohammad advised traders to create fresh short positions on a bounce into the zone of 11250 – 300 levels with a stop above 11310 on a closing basis.

India VIX fell down by 3.52 percent from 22.18 to 21.41 levels. Cool down in volatility even after weakness in the market indicates that some sort of range-bound move along with capped upside could be seen for next coming sessions, say experts.

On the options front, the maximum Put OI is placed at 11000 followed by 10500 strikes, while maximum Call OI is placed at 11500 followed by 11600 strikes.

“The index has been making lower top - lower bottom on the daily scale and closed below its 50 DEMA which is giving the upper hand to the bears in the market. It formed a Bearish Belt Hold kind of candle as it made almost open high and remained under pressure at every small bounce back move,” Chandan Taparia of Motilal Oswal Financial Services Limited told Moneycontrol.

“Now till it sustains below 11333-11300 zones, a bounce could be sold for further weakness towards 11000 and 10880 zones while on the upside medium term hurdle is shifting lower to 11450 zones,” he said.