Technical View: Nifty forms a ‘Bearish Belt Hold’ pattern; it is advantage bears now

Equities

The Nifty50 which started on a weak note on Thursday succumbed under selling pressure after fiscal deficit at the end of October hit 96.1 percent of the Budget estimate for 2017- 18, which resulted in a ‘Bearish Belt Hold’ kind of pattern on the daily charts.

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

In Thursday’s price action, Nifty50 opened at 10,332 which also became the intraday high level. The index slipped near its crucial support level placed around 10,200 and hit its intraday low of 10,211. It closed 134 points lower at 10,226.55.

Traders are advised not to create long positions as the weakness could stretch in the coming session. Technically, the index witnessed a breakdown below 10,250 and if Nifty fails to recover in the coming sessions, a retest of 10,100 is possible, suggest experts.

Investors were hoping for a breakout after steady consolidation seen in the last 10 days. The Nifty has extended its fall for the third consecutive day with a deeper cut as it closed below 20-day moving average and tad above its 50-DEMA placed around 10,208.

“The Nifty50 registered a ‘Bearish Belt Hold’ kind of formation as it witnessed a gap-down opening and slowly drifted down by more than 100 points. The pace with which it has fallen is clearly suggesting that the trajectory of the index might have changed its course to the downside,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

Interestingly Thursday’s move has erased last 7 days of positive closes which were laboriously added by the Bulls post gap-up opening witnessed on 17th of November.

“In such a scenario if the fall continues then it should take the indices below 10,094 levels to complete its corrective pattern. On the other hand, if today’s fall is just related to expiry reasons and market recovers in immediate trading session without adding much to the downside then bulls will be in a position to recover some of the lost ground. For time being it is a clear cut advantage to the bears,” said Mohammad.

India VIX moved up by 3.75 percent at 13.55. Rising volatility has again given the grip in hand of bears which could pose a short-term concern for long positions.

On the options front, for the December series, maximum and significant open interest is standing at 10,000 strike with the outstanding position of around 65 lakh shares while maximum Call OI is at 10,500 strike.

“Option band signifies lower trading band with the expectation of higher market volatility in December series. Nifty formed a Bearish Belt Hold candle and corrected by around 150 points. It continued its weakness for third consecutive sessions and corrected towards 10200 zones,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Now, if it sustains below 10,300 then short-term weakness could be seen towards 10,178 then swing low of 10,094 while on the upside immediate hurdles are seen at 10,250 level,” he said.