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The Nifty50 failed to reclaim 10,800 levels but managed to hold on to its crucial support placed at 10709-10700 levels and hit a 2-week low on Tuesday. The index made a Bearish Belt Hold kind of pattern for the second consecutive day in a row.
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 Tuesday's price action, Nifty50 opened at 10,789.45 and was also the intraday high for the index which resulted in no upper shadow. The bears took control of D-Street in morning trade and pushed the index below its crucial support placed at 5-exponential moving average (EMA), 13-EMA, and 20-EMA.
Investors are advised to remain cautious and use rallies to short the index with a stop above 10,830. As long as Nifty is trading below 10,930 chances of correction will always remain.
The Bank Nifty continued its formation of lower highs - lower lows for the last four trading sessions. It formed a Bearish candle on the daily scale and resistances are gradually shifting lower.
As long as it doesn’t negate this formation and holds below 26,500 zones then weakness could be seen towards 26100 and then towards 25950 zones, suggest experts.
“The Nifty50 registered a Bearish Belt Hold formation as it set the bearish tone from the word go which also became the highest point of the day. In this process it almost tested the lower end of the bullish gap zone between 10722 – 10698 registered on 7th of June,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“If the index fills this gap and settles below 10,698 levels then it may initially head to test its 50 Day EMA, whose value is placed around 10,646 levels from where it has bounced back in the past,” he said.
Mohammad further added that a breach of this support shall confirm more downsides for the indices with a target placed below 10,417. It looks prudent for traders to make use of rallies towards 10,770 to create fresh shorts with a stop of 10,830.
India VIX moved up by 4.66 percent at 12.96 levels. A decline is Put Call Ratio with the rise in volatility from lower levels is now restricting its upside momentum.
On the options front, maximum Put OI is placed at 10,700 and 10,600 strikes while maximum Call OI is placed at 11,000 followed by 10,800 strikes.
Fresh Put unwinding at all immediate strike while significant Call writing is seen at 10,800 and 11,000 strikes. Options data suggests a shift in a lower trading range in between 10,650 to 10,800 zones.
“The Nifty index formed a Bearish Belt Hold candle on the daily scale and broken its immediate support of 10,750 and 10,720 zones. It has given a breakdown from its narrow range 7 (NR7) pattern and closed near to the support of its rising channel on daily chart by connecting recent swing low of 10417 and 10550 levels,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“Now, if the index sustains below 10,750 zones then profit booking could continue towards 10,660 then 10,620 levels while on the upside hurdles are seen at 10,770 then 10,835 levels,” he said.
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