Technical View: Nifty forms Bearish Belt Hold on weekly charts; Supertrend gives a ‘sell’

The Nifty50 which started on a positive note on Friday but failed to keep the momentum going and wiped out gains made in a trade to close in red, but above its crucial 200-days exponential moving average (DEMA).

The index formed a bearish candle on the daily charts but made a Bearish Belt Hold kind of pattern on the weekly charts which suggest that the pain may not be over.

A ‘Bearish Belt Hold’ pattern is formed when the opening price for the week becomes the highest point of the week and the index declines throughout the trading week making up for the large body. The candle will either have a small or no upper shadow and small lower shadow.

On Friday, the index opened at 10,271 and rose marginally to hit an intraday high of 10,296. But, bears soon took control and pushed the index towards 10,200 to hit an intraday low of 10,211. It closed 15 points lower at 10,226.85.

The index is likely to remain volatile in the coming week and the pattern will be confirmed if Nifty closes in red on Monday as well. After such a steep decline there is a higher possibility of Nifty forming a base around its 200-DEMA, suggest experts.

Widely tracked Supertrend indicator also gave a sell signal on the weekly charts which suggest that bears are likely to remain in control at least in the short term.

As the name suggests, ‘Supertrend’ is a trend following indicator just like Moving Averages and MACD (Moving Average Convergence Divergence). It is plotted on prices and their placement indicates the current trend. The MACD also gave a Sell signal in the previous trading session.

The Nifty index has a strong support near 10,004 levels which is its 50-DMA. It broke below its 20-DEMA on the weekly charts on Friday.

“The Nifty50 registered a small bearish candle after moving in a narrow range of around 80 points but on weekly charts, it witnessed a Bearish Belt Hold kind of formation suggesting intense selling pressure throughout the week,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

“Albeit we have seen lack of follow through to Thursday’s somewhat stronger up move, Friday’s price action can be attributed to week end factor as markets merely appear to have witnessed profit booking without much intense selling pressure,” he said.

Mohammad further added that more directional clues will appear post Monday’s session and a positive close on the first day of the week may set the tone for extension of this pullback move towards 10450 kind of levels.

“Unless market witness major weakness on Monday threat of breaching recent lows of 10140 instantly will not be there. Hence, traders are advised to selectively look at forming long positions,” he said.

India VIX fell down by 0.41% at 14.53. On the options front, maximum Put open interest stood at 10000 followed by 10200 strikes while maximum Call open interest is at 10500 followed by 10400 strike.

Fresh Call writing was seen at 10300 followed by 10500 strikes while Put writing was seen at 10200 followed by 10150 levels.

“Option band signifies a range bound trading range between 10100 to 10350 zones. Nifty index opened gap up and trying to surpass 10300 level but efforts fails short as indices drift lower from day’s high of 10296,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol told Moneycontrol.

“Indices saw bearish contradicting pattern on the daily scale, which is generally sign of a initialization of sideways momentum. Indices respecting recent swing low of 10141, unless this level negated with close below the same, expectation remains high for consolidation,” he said.

Taparia further added that Nifty needs to hold above immediate resistance of 10276 to witness an up move towards 10333 then 10400 zones while on the downside supports are seen at 10141 then 10100 zones which is near to its 200 DEMA.