Tech View: Nifty50 falls below key support, trend negative

Nifty50 fell for the fifth straight day on Thursday and formed a long bearish candle on the daily chart that engulfed the previous session’s candle.

During the day, the 50-pack index could not hold its key support levels as it entered the oversold territory, as suggested by the 14-day relative strength index. While the trend broadly stays positive, some bounce after the steep fall is likely.

Milan Vaishnav, Founder & Technical Analyst at Gemstone Equity Research, said that generally engulfing candles are bearish, but in the present case, the bearish engulfing candle has been formed following a decline.

“It suggests that this may be the last engulfing candle, and there could soon be the formation of a potential bottom and a point of reversal. We believe this bearish engulfing candle must not be blindly traded on the downside,” Vaishnav said.

“The RSI shows a strong bullish divergence against the price. The best possible method to handle the present trade setup is to use downsides to pick stocks with strong relative strength. Shorts must be avoided as short traps may occur, especially when the markets stare at an imminent technical pullback,” he added.

For the day, the index closed at 15,360.60, down 331.55 points or 2.11 per cent.

Mazhar Mohammad of Chartviewindia.in, said that only solace for the bulls at this point in time, is that after the fall the index exactly hit the lower boundary of a 3-month old downsloping channel with an intraday low of 15,335 level.

“Hence, some consolidation and pause in the downfall can be expected around the current levels. Nevertheless, as the larger trend is down, if the Nifty slips below the 15,344 level, then the weakness shall extend towards the 15,055 level. Meanwhile, upsides, if any, shall remain capped around 15,890 levels,” Mohammad said.

Gaurav Ratnaparkhi of Sharekhan said that the index opened right into the resistance zone of 15,800-15,900 but failed to cross the upper end.

The index eventually breached the March low of 15,671 decisively. “Structurally, the index is set to test 15,100-15,000 on the downside. On the flip side, 15,670-15,700 will now pose as a resistance zone for the short term,” he said.

Nifty Bank


Chandan

of Motilal Oswal Securities said that the index failed to surpass a key hurdle of 33,750 and later nosedived towards the 32,500 level.

“It formed a big Bearish candle on the daily scale and broke its immediate weekly support zones. Now, till it holds below 33,000, weakness may be seen towards 32,250 and 32,000 zones whereas hurdles are placed at 33,000 and 33,333 zones,” Taparia said.

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Harry Byrne

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