Technical View: Nifty forms ‘Bearish Belt Hold’ kind of pattern; trade long with a stop below 10,400

The Nifty50 which hit a record high in the opening tick failed to gain momentum throughout the trading session on Wednesday and closed slightly in the red making a ‘Bearish Belt Hold’ kind of pattern on the daily candlestick charts.

Formation of Bearish Belt Hold after two bullish candle suggests pause in the momentum. Short term traders can book partial profits while the rest can remain long with a stop below 10,400 on a closing basis, suggest experts.

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 Wednesday’s price action, Nifty50 opened at 10,494.40 rose marginally to 10,494.45 which was its intraday high. The index slipped after hitting a record high to its intraday low of 10,437.15. It finally closed 19 points lower at 10,444.20.

Traders are advised to remain long as long as Nifty trades above 10,350 levels and a stop can be placed around 10,400 levels on closing basis for the index. A hold above 10,350-10,380 could propel the index towards 10,495-10550 levels.

“Albeit it looked like a day of consolidation on the bourses the Bearish Belt Hold kind of formation in Wednesday’s session should ring alarm bells for the short term traders about the impending weakness,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Unless Nifty50 get past 10,494 levels in the next couple of trading sessions there can be a possibility of Double top formation going forward. Besides, another major index v.i.z Bank Nifty which was underperforming hitherto has registered Bearish Engulfing formation in today’s session and hence any selling pressure on this index may eventually spill over to broader markets,” he said.

Mohammad is of the view that it looks prudent for short-term traders to book part profits and ride remaining positions with a stop below 10,400 on a closing basis. “The momentum on the index should once again pick up only on a close above 10,495 levels,” he said.

India VIX remained almost flattish at 12.18. India VIX has fallen down by 27 percent in the last three sessions and needs to hold below 13-12.50 zones to get the smooth ride.

On the options front, maximum Put open interest was seen at 10,000 followed by 10,400 and 10,300 strikes while maximum Call OI was seen at 10,500 followed by 10,600 strikes.

Fresh Call and Put writing was seen at 10,500 strikes. Put writing at higher strike suggests limited upside while Call writing suggests limited upside.

“Option band signifies an immediate trading band in between 10,330 to 10,550 zones. On the technical front, Nifty formed a Bearish Belt Hold candle as It opened higher but closed at the lower part of the day,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The index has to continue to hold above 10,380 zones to witness an up move towards 10,495 then 10,550 while on the downside supports are seen at 10,330 levels to hold this positive momentum,” he said.