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 Nifty50 which started with a small gap on the higher side in morning trade on Thursday failed to garnet momentum as bears took control of D-Street in the first 15-minutes of trade. The index witnessed strong selling pressure throughout the session which made a ‘Bearish Belt Hold’ kind of pattern on the daily candlestick 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 10,775.60 and rose marginally to 10,777.25 which made a small or non-existent upper shadow. The bears took control of D-Street in morning trade and pushed the index below its crucial support placed at 5-double exponential moving average (DEMA) placed at 10,737, and 13-DEMA at 10,712.
The index bounced back from its 20-DEMA placed at 10,670 to close 58 points lower at 10,682.70. The positive takeaway is that it managed to close above its support placed at 10,680.
But, bears are slowly tightening their grip on D-Street. The Moving Average Convergence and Divergence, popularly known as MACD, gave a 'sell' signal on the daily charts for the first time since March 2018.
MACD is one of the most effective trend-following momentum indicators, which can be used to spot a change in the short-term trend of the market.
The outlook has become slightly bearish as the index registers a 'sell' signal on the MACD; however, a confirmation will come if the index consistently trades below 10,700 levels.
“In line with our projections, Nifty50 continued its slide before signing off the session with a Bearish Belt Hold kind of formation. Hence, it appears that to culminate the corrective structure it will continue its downward swing below 10601 and may test its 50-day moving average, whose value is placed around 10550 levels, before bottoming out,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“Hence, in the zone of 10,601 – 10,550 one can expect the correction to end and selectively look for stock specific opportunities. Meanwhile, daily MACD also generated a ‘sell’ signal confirming downward pressure on the markets,” he said.Mohammad further added that throughout the session the advanced decline ratio was skewed in favor of bulls suggesting that perhaps broader markets might have reached a value zone as many beaten down names from mid and small cap space clocked in decent gains. Strength on the upside can be resumed if the indices manage a close above 10,780 levels.