Technical View: Nifty forms ‘Bearish Belt Hold’ on charts; 13-DEMA could lend support

The Nifty50 closed marginally above its crucial support of 10,000 on Thursday and made a ‘Bearish Belt Hold’ kind of pattern for the second day in a row as bears took control of D-Street from the word go.

A Bearish Belt Hold pattern is formed when the opening price becomes the highest point of the trading day which in Thursday’s trading session 10,081.15. After opening, the index then witnesses selling pressure throughout the trading session.

In this pattern, there is 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.

The index slipped over 80 points from its opening level to touch its intraday low of 9998.25 which made a slightly long lower shadow. The index bounced back from its 10-days exponential moving average placed at 10,010 to close at 10,013, down 67 points.

Traders preferred to book profits ahead of the weekend but analysts do not see the correction extending beyond two trading sessions. The index has very strong support near its 10-days exponential moving average (DEMA) placed at 9,985.

A break below 13-DEMA could fuel further profit booking decline towards its next support of 9,930-9,950 levels. Investors are advised to pare long positions and tread with caution.

A trend reversal could happen if the index closes below its 13-DEMA convincingly which has acted as crucial support for the index so far in the year 2017.

“The Nifty50 registered ‘Bearish Belt Hold’ formation for the second day in a row as it witnessed selling pressure. In this process it also broke its 11-days ascending channel with multiple touch points on lower time frame charts which are projecting a downside target close to 9,916 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Besides our twin momentum oscillators are also in sell mode which usually suggests extension of correction for a couple of trading sessions. However, in this leg of up move from June lows of 9448 levels corrections in the index have not lasted beyond two days,” he added.

Mohammad further added that the index is trading close to 13-day EMA from where it reversed its course of correction in the past. “We believe that short term trend should get reversed if index closes below the said average in next trading session,” he said.

On the options front, maximum Put OI was seen at strike prices 10,000 followed by 9,800 while maximum Call OI was seen at strike prices 10,500 followed by 10,100 and 10,200.

Fresh Call writing at strike prices 10,100 to 10,300 while Put OI is intact at 10,000. “Now, a small Call writing in 10100 strikes could make this strike as a highest OI congestion and in that scenario upside could be even capped to 10120-10140 zones,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“However, the index would give a sign of further weakness only if Put unwinding happens in 10,000 strikes. On the technical front, Nifty index formed a Bearish Belt hold candle followed by a Bearish Engulfing pattern on the daily chart,” he said.

Taparia further added that Nifty has broken its rising support trend line by connecting the recent swing lows of 9543, 9646, 9838 and 9944 and now if it sustains below 10050 then profit booking could continue towards 9950-9928 zones while on the upside hurdles are placed at 10080 then 10120 levels.