Supertrend indicator, MACD signal a ‘SELL’ on Nifty; what should investors do?

Sensex_Nifty

After a freaky Friday, traders are staring at another weak session Monday with Nifty50 breaking below its crucial support placed at 50-day moving average (DMA) of 9,955 and the Supertrend indicator, as well as MACD, signalling a ‘SELL’.

Long-term investors could use the dip to buy quality stocks but for traders the tide has turned from buy on dips to sell on rallies. The index is expected to retest levels closer to 9700, suggest experts.

The Nifty index hit a fresh record high of 10,178 on September 19, and since then it has fallen over 200 points to hit a low of 9,836 on Monday. A decisive break below 9,965 could take the Nifty lower till 9720-6980 levels, suggest experts.

Consistent selling by foreign portfolio investors (FPIs) throughout September capped upside potential. For now, we could say the Nifty might have made an intermediate top at 10,178.

But, given the fact, many fund managers sitting on large piles of cash could come in and support the index and prevent a free fall.

Foreign investors remained in exit mode as they have pulled out nearly Rs 5,500 crore from stock markets so far this month due to geopolitical concerns and a tendency to take profit.

Persistent selling by FPIs turned most technical indicators to sell mode. One such indicator tracked by traders is ‘Supertrend Indicator’ and Moving average convergence divergence (MACD).

“After this kind of fall from the highs of 10179, it is quite natural for the indicators to generate sell signals. Hence at this juncture, we don’t lay any specific emphasis on this signal at this point in time,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“As the short term trend decisively tilted in favour of bears on Friday any pullback attempt should be utilised to exit stuck up long side trading bets as 10179 can remain as the near-term top for weeks to come until Nifty50 slips below 9685 to complete corrective structure,” he said.

The Supertrend indicator gave a buy signal earlier this month on 12 September. The momentum took the index to a record high of 10,178 but soon after the momentum fizzled out.

The last time Supertrend indicator gave a SELL signal was in September 2016 when the index was trading around 8800. The index fell nearly 1200 points before the signal reversed its trend and that was in December 2016.

'Most of the indicators including SuperTrend and MACD have turned (or turning) bearish, this is quite expected considering the 300 odd point fall on Nifty,” Karthik Rangappa, VP - Educational Services, Zerodha told Moneycontrol.

“Short term traders can look at this as an opportunity to close their profitable long positions and perhaps look at short opportunities at every bounce. Investors, with long-term, patient capital should look for buying opportunities and be adding more to their portfolio,” he said.