Bears took control of D-Street on May 18 pushing the S&P BSE Sensex towards 30,000 while Nifty50 broke below 9,000 levels convincingly. Trend following indicators such as MACD and SuperTrend indicators also suggest that bears are likely to remain in control and any rallies might lead to profit-taking.
Moving Average Convergence/Divergence (MACD) indicator is used to measure the strength, the direction as well as the momentum of a trend. It can provide early clues to trend continuation or reversal. MACD has given a bearish crossover on the daily charts of Nifty.
SuperTrend is also a trend following indicator just like MACD. It gave a sell signal on the Nifty. The last time it gave a Sell signal on the index was in February. The index made a low of 7,511 on March 24 before bouncing back.
Both indicators suggest that bears could remain in control, and any rallies towards 9,000 will attract selling at higher levels, suggest experts. The level of 8800 remains to be a big support, and a close below this level could take the index towards 8,700 levels.
“The daily price action has formed a sizable bearish candle forming lower High-Low compared to the previous session, indicating weakness at current levels. When both the MACD and super trend give a sell signal together, it has a higher chance of the trade to work in our favour. The chart pattern suggests that 8800 levels remain crucial,” Rajesh Palviya, Head - Technical and Derivative Research, Axis Securities told Moneycontrol.
Any violation of this support zone will see further downside towards 8,730-8,650 levels. On the upside, immediate intraday resistance is placed around 8,950-9,050 levels. The short to medium-term bias remains weak on the market, and any pullback rally towards the resistance zone remains as a selling opportunity for traders,” he said.
The Nifty50 continues to sustain below 20 and 50-days SMA which supports bearish sentiments ahead.
What should investors do?
The Nifty50 is now trading near crucial support levels, hence, a technical bounce back could be on the cards.
However, traders should tread with caution as selling could be seen at higher levels. As long as Nifty holds below 9050-9000 levels, selling pressure could continue.
Expert: Ashish Chaturmohta, Head of Technical and Derivatives, Sanctum Wealth Management
The rally from the 7,500 levels has retraced almost 50% of the entire fall. Now after sideways consolidation above 9100 odd levels, index has given breakdown below it. Thus indicating bounce back rally is over markets have resumed their downtrend.
The Nifty50 has a support near the level of 8800, thus a bounce back rally towards 9,150 may expected if the 8800 holds. Below, 8,800 levels, next are seen at 8,400 and then 8,100 odd.
Expert: Chandan Taparia, VP, Analyst-Derivatives at Motilal Oswal Financial Services Limited
The Nifty50 formed a Bearish Marubozu candle on the daily chart, indicating complete dominance of bears throughout the session. It gave a breakdown from Head & Shoulder pattern on an intraday scale and fell on the chin.
The Nifty is making Lower Highs - Lower Lows from three consecutive sessions and sustaining below 20 DEMA. Momentum oscillator RSI and MACD also turned southward on both daily and weekly charts, which is a negative sign for the index.
Going forward, till Nifty holds below 9050 zones selling pressure could continue towards 8500-8350 zones. On the flip side, resistances are shifting lower to 9150 and major at 9450 zone.
Expert: Sameet Chavan (Chief Analyst-Technical and Derivatives, Angel Broking)
‘SuperTrend’ (9:2.1:6) is yet to confirm the bearish signal. In fact, Monday’s low in Nifty precisely coincides with the ‘SuperTrend’ level. Hence, 8800-8750 can be seen as crucial support.
Till the time Nifty holds this, we remain a bit hopeful although the real strength will get confirmed only after reclaiming the 9000 mark convincingly.
Overall, be it MACD or SuperTrend, all these are trend-following indicators and they are known to perform extremely well in trended markets. In our sense, at present, we are in a directionless market when considered the ‘Daily’ time frame chart.
Expert: Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas
The Nifty at the beginning of the May series witnessed a sharp reversal in the sentiments. It formed a bearish Island reversal to mark the end of the March-April pullback. With that, the index has entered correction mode once again.
Since then various Technical parameters have turned in favor of the bears including a bearish crossover in daily MACD & a sell signal on Supertrend indicator. This adds to the weight of evidence in favor of the bears suggesting lower levels going ahead.
On Monday, the Nifty50 has broken the key support of 9,000. The stage is now set for Nifty to tumble back to the March low of 7,511 with intermediate supports at 8,400 & 8,000. On the other hand, 9,100-9,150 will now act as a crucial hurdle zone
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