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Technical View: Nifty forms Bearish Belt Hold pattern, MACD gives a sell signal

Mazhar Mohammad said this near term bearish outlook shall get negated only on a close above 12,290 levels.

December 31, 2019 / 06:14 PM IST

Nifty fell on the last trading session and closed the year 2019 below 12,200 levels on December 31, dragged by banking & financials, auto, IT stocks and Reliance Industries.

The index registered a Bearish Belt Hold formation on daily charts.

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

The Nifty50 opened lower at 12,247.10, which was also the day's high, and extended selling pressure to hit an intraday low of 12,151.80 in late trade. The index closed 87.40 points lower at 12,168.50.

Bulls have one more reason to worry. Today's sell off appears to have initiated a fresh leg of downswing, as the Moving Average Convergence and Divergence, popularly known as MACD oscillator generated a sell signal on daily charts for first time since November 11.

"In such a scenario the initial target shall be the recent corrective swing low of 12,118 levels and beyond that a higher target of 12,040 can be expected which appears to be the next critical support based on averages," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said this near term bearish outlook shall get negated only on a close above 12,290 levels.

Therefore traders with high risk appetite can remain short on this market by making use of rallies and look for a target of 12,050 whereas intraday traders are advised to go short below 12,150 and look for a target of 12,100 levels with intraday’s high as stoploss, he added.

Option data suggests that the Nifty could trade in a wider range of 11,900 to 12,500 levels in coming days.

On January options front, maximum Put open interest was at 12,000 followed by 11,500 strike, while maximum Call open interest was at 12,500 followed by 12,200 strike. Call writing was seen in 12,300 and 12,500 strike while Put writing was seen at 11,800 then 11,500 strike.

India VIX moved up by 5.97 percent to 11.66 levels.

Bank Nifty made same open and high levels and corrected by 0.60 percent to close at 32,161.70, forming a negative candle on daily chart.

"Index is consolidating in a broader range of 32,000–32,600; wherein buying interest emerges around 32,000 levels, while supply was witnessed in 32,500–32,600 levels. Till the time, BankNifty sustains above 32,000 mark, we maintain our positive stance on the index for an upmove towards 32,500-32,600 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Sunil Shankar Matkar
first published: Dec 31, 2019 05:29 pm