Technical View: Nifty forms bearish candle; Supertrend indicator signals 'sell' call

Bears dominated the D-Street from the word go on Thursday. The index after breaching 10,700 in Wednesday’s trading session failed to hold on to 10,600. It formed a long bearish candle on daily charts and the Supertrend indicator gave a sell signal which does not augur well for bulls.

The index slipped below its crucial 50-EMA but took support at its 100-day moving average placed at 10,571. Bears have tightened their hold on D-Street which is evident from the fact that the widely tracked Supertrend indicator gave a sell signal on the charts today.

As the name suggests, 'Supertrend' is a trend following indicator just like Moving Averages and MACD (Moving Average Convergence Divergence). It is plotted on prices and their placement indicates the current trend. The MACD also gave a Sell signal on daily charts last week.

The last time Supertrend indicator gave a sell signal the index touched a low of 10,418 before bouncing back towards 10,700 levels when it gave a buy signal.

Bank Nifty continued its selling pressure and has been making lower highs - lower lows from last three trading sessions. As long as the index remains below 26,500 it could drift towards 26,100 and then 25,950 while on the upside major hurdles are seen at 26,500 then 26,750 zones.

Investors’ are advised to remain cautious and as long as Nifty trade below 10,600 there is a higher probability of the index hitting 10,417 levels. However, the first major support is placed at 10,550-10,500. However, a close above 10,666 which is also Thursday’s opening level could bring bulls to take control of D-Street.

The Nifty50 index opened at 10,660 and rose marginally to hit an intraday high of 10,674 but then bears took control of D-Street and took the index below 10,600 levels. The Nifty hit a low of 10,557 before closing the day at 10,589, down 82 points.

“In line with our projections, Nifty50 continued its slide as it decisively breached its 50-day EMA as bears signed off the expiry session in style with a large Bearish Candle. Now, chart patterns are looking very clear with this breakdown which is projecting a pattern target placed below 10417 to culminate the ongoing corrective phase,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“In between, some minor supports are placed around 10,550 kinds of levels but eventually they need to obey the power of bears as momentum on the downside is looking very strong,” he said.

Mohammad further added that traders are advised to avoid bottom fishing for time being till some signs of strength and stability are witnessed in the markets. On the other hand, strength for bulls can be presumed if they manage to claw back above 50 Day EMA (10,666).

India VIX moved up by 3.24 percent at 13.95 levels. The spurt in VIX indicates that bears have taken a grip on the market and selling pressure seen even in many heavyweights stocks in line with the weakness in the Global market.

On the options front, data is scattered at different strikes being the start of the July series. Maximum Put open interest (OI) for July series is placed at 10,600 followed by 10,500 strikes while maximum Call OI is placed at 11,000 followed by 10,800 strikes.

“Options data suggests a limited upside while downside support is yet not established in the absence of meaningful open interest inventory at the beginning of the new series,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The Nifty index formed a Bearish candle on daily scale followed by Bearish Belt Hold candle. It has been making lower highs - lower lows from last three trading sessions and slipped below its 50 DEMA,” he said.

Taparia further added that till it sustains below 10,660 zones, weakness could extend towards 10,550 and then towards 10,420 levels while on the upside hurdles are seen at 10,660 and then towards 10,700 zones.