Technical View: Nifty forms small bearish candle; MACD gave sell signal on charts

The Nifty50 which started on a buoyant note failed to hold on to momentum and corrected in the second half of the trading session and closed below its opening level making a small bearish candle on the daily candlestick charts.

A small bearish candle is formed when the index trades in lower or within a defined range for the most part of the trading session. The length of the candle signifies the range for the day. It would have a small body and typically equidistant lower and upper shadow.

The Nifty50 index which opened on a positive note at 10,074.80 rose to an intraday high of 10,088.10 which made a small upper shadow.

The Bears regained control and pushed the index towards its support level placed at 5-days exponential moving average (DEMA) of 10,050 as it touched its intraday low of 10,046.35. The Nifty50 closed 9 points lower or 0.09 per cent at 10,057.40.

Bulls have one more reason to worry as the Moving Average Convergence and Divergence, popularly known as MACD, gave a 'sell' signal on the daily charts for the first time since June.

Although, history suggests that market moved higher even though MACD gave a sell signal, but still it is a negative indicator and cannot be ignored. Traders can still remain long as long as Nifty holds on to key support levels with a trailing stop placed at 9988.

“Lack of follow through to Friday’s session is certainly a cause for concern even as daily MACD also generated a sell signal. However, in the recent past this kind of short term weakness or sell signals didn’t work out in favour of bears,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“In the back drop of this kind of behavioural changes on short term technical parameters we advise traders to remain cautiously optimistic till severe breakdowns on higher time frame charts are visible,” he said.

Mohammad advises traders with a high-risk appetite to focus on stock specific opportunities and remain long with a stop below 9,988 levels on closing basis. Below which, in an ideal scenario, a short term downtrend shall be resumed.

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

Fresh Call writing was seen at strike prices 10,200 and 10,100 while Put writing is being witnessed at 10100 and 10000 strikes.

“Option data suggests limited upside as well as the downside as index got stuck in a trading range with the grip of options writers. If Nifty slips below 9980 or hold above 10120 then only we might see a change in option scenario as well a trigger for the further momentum in the market,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“On the technical front, Nifty formed a small bearish candle and finally closed with the marginal loss of around 10 points. It has to cross and hold above 10080 to witness an up move towards 10,120-10,140 while on the downside supports are seen at 10,020 then 9,980 mark,” he said.