Technical View: Nifty forms a ‘Bearish Belt Hold’ on charts; could slip towards 9,685

The Nifty50, which opened with a slight gap on the upside, pared gains as bears took control of D-Street and pushed the index towards its 100-day exponential moving average (DEMA) placed at 9,731 on Wednesday. The index made a ‘Bearish Belt Hold’ pattern on daily charts.

The index witnessed suffered a knee-jerk reaction after Indian Army said that it struck hideouts of Naga militants along the Myanmar border early on Wednesday.

A 'Bearish Belt Hold' pattern is formed on charts when the opening price becomes the highest point of the trading day. The candlestick would have a small or no upper shadow and the index declines throughout the trading day which makes up for the large body and a small lower shadow.

In Wednesday's price action, Nifty50 opened at 9,920.60 which was slightly below its intraday high of 9,921.05. The index finally closed 135 points lower from its previous close of 9,871.50 to 9,735.75.

Traders are advised to remain cautious and avoid creating fresh long positions as technical indicators point towards 9,685 in the near term. On the other hand, if Nifty sustains above its 100-DEMA, recovery is possible, suggest experts.

“In line with the larger trends gap up the opening of Nifty50 was sold off in today’ session as a result of which a large bearish candle which resembles a Bearish Belt Hold formation was registered,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“As projected earlier in these columns this fall should slip below 9,685 levels to give rise to some hopes of recovery as one corrective structure gets culminated below this point,” he said.

Mohammad is of the view that in the unfortunate event of a decisive breach of 100-DEMA on a closing basis may drag down the indices towards 200-day moving averages places around 9,400 levels.

India VIX moved up sharply by 7.21 percent at 13.86 and again jump in volatility is a cause of concern for the short-term market movement.

On the options front, maximum Put open interest (OI) shifted to 9,700 followed by 9,600 strikes while maximum Call OI is shifted to 9,900 and 10,000 strikes.

We have seen significant Call writing at all the strikes from 9,750 to 9,900 while fresh Put writing activities was seen at all the lower strike below 9,700 zone.

“Sustained Call writing and Put unwinding is not given any sign of a pause in the selling pressure. Nifty formed a Bearish Belt Hold candle on the daily chart and fell by around 200 points from its intraday highs,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Nifty failed to hold 9,880 zone and witnessed sustain selling pressure till the end of the session ahead of September derivatives settlement day. It nullified the effect of Dragon Fly Doji on the daily scale and also forming a bearish Belt hold on the weekly chart,” he said.

Taparia further added that it remains below 9,820 zone, weakness could continue towards 9,685 and 9,550 zones while on the upside hurdles are seen at 9,777 then 9,820 zones.