Technical View: Nifty breaks 50-day EMA with long bear candle formation, likely to test 21,500-mark

Nifty likely to test 21,500 in coming sessions

Bears turned into full action on March 19, as the Nifty 50 finally has decisively broken the consolidation range on the southward side and closed below 21,860 with more than a percent loss. Valuation concerns in the domestic market and caution ahead of the US FOMC meeting seem to have weighed on the market sentiment.

The Nifty 50 has broken the higher highs, higher lows formation by falling below 21,860 as well as the upward sloping support trendline, and fell below the 50-day EMA (exponential moving average placed at 21,865). Hence, given the nervousness, the index may extend a southward journey towards the first 21,700 and then 21,500 in the coming days, while 22,000 is expected to be a key hurdle on the higher side, experts said.

The Nifty 50 opened lower at 21,946 and remained under pressure throughout the session. The index hit an intraday low of 21,793, before closing at 21,817 (the lowest closing level since February 13), down 238 points and formed a long bearish candlestick pattern on the daily charts with above-average volumes.

"Having moved below the recent higher bottom of 21,860 of February 29, the Nifty seems to have negated its bullish pattern like higher tops and bottoms and this could eventually resume bearish pattern like lower tops and bottoms, as per daily timeframe chart," Nagaraj Shetti, senior technical research analyst at HDFC Securities said.

He feels the overall chart pattern of Nifty is weak and one may expect further decline in the near term. "The next lower levels to be watched are around 21,500 in the next 1 week. Any rise up to 22,000 could be a sell-on-rise opportunity," he said.

The options data indicated that 21,800 is expected to be immediate support for the index, while 22,000 may be the resistance area for the Nifty 50.

As per the weekly options data, the maximum Call open interest was seen at 22,000 strike followed by 22,500 and 22,200 strikes with Call writing at 22,000 strike and then 21,900 strike, while on the Put side, the 21,000 strike owned the maximum open interest followed by 21,800 and 21,400 strikes with meaningful writing at 21,400 strike and then 21,800 strike.

Bank Nifty

The Bank Nifty continued a downtrend for the eighth straight session but remained in the previous day's trading range. The index fell 191 points to 46,385 and formed a small-bodied bearish candlestick pattern with upper and lower shadows which resembles the Doji sort of candle on the daily charts, indicating ongoing indecision between bulls and bears.

"Key levels to watch include support at 46,000 and resistance at 47,000, where the highest Put and Call open interests are concentrated. A breakout beyond this range is awaited for a directional move; however, within the range, the bullish sentiment prevails," Rupak De, senior technical analyst at LKP Securities said.

Traders may consider adopting a buy-on-dip strategy, with 46,000 as a stop-loss level, he advised.

Meanwhile, the broader markets were also under pressure with the Nifty Midcap 100 and Smallcap 100 indices falling 1.2 percent each.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.