Bearish Engulfing pattern suggests Nifty may fall to August lows, India VIX hits 4-month high

The Nifty50 lost all its previous day’s gains and has broken 21-day EMA (exponential moving average 19,723) as well as 50-day EMA (19,559) as bears turned strong with formation of Bearish Engulfing pattern on the daily charts with above average volumes, indicating the negative sentiment may prevail in coming days.

Hence, the index may hit the lows of August around 19,220 if it fails to hold 19,500, while the resistance on the higher side may remain at 19,750, experts said.

The Nifty50 opened higher and hit an intraday high of 19,767, but lost all gains after the initial hour of trade and hit a day’s low of 19,492. The index finally managed to settle above the 19,500 mark, down 193 points at 19,523, especially due to a spike in oil prices which raised a threat to inflation and the operating performance of companies.

Technically, the market action indicates weak bias and one may expect some more declines in the near term,” Nagaraj Shetti, technical research analyst at HDFC Securities said.

Nifty has broken below the crucial weekly support of 10-week EMA at 19,560 levels and closed lower. The said weekly 10-period EMA has been offering support for the market in the last few months and that resulted in a decent upside bounces from the said support in the past.

    Having declined below this support this time, the market could slide down to its next support of 20-week EMA, which is currently placed around 19.230 levels, while immediate resistance is at 19,700 levels, he said.

    On the Options front, the maximum Call open interest was seen at 19,600 strike followed by 19,700 strike with meaningful Call writing at 19,600 strike then 19,500 strike while the maximum Put open interest was at 19,500 strike, followed by 19,600 strike with Put writing at 19,500 strike then 19,400 strike.

    The above Option data indicated that the Nifty may take support at 19,500, while 19,600-19,700 can act as resistance in the immediate term.

    Bank Nifty

    The Bank Nifty has also formed a long bear candle on the daily scale and declined 287 points to 44,301, the lowest closing level since August 31.

    “The immediate support on the downside is situated at 44,200 and a breach below this level could trigger further selling pressure, potentially taking the index down to the 43,800 mark,” Kunal Shah, Senior Technical & Derivative analyst at LKP Securities.

    However, the strong resistance has formed at the 20-day moving average (20DMA) located at the 45,000 mark, he said.

    In this scenario, he feels it’s advisable to maintain a “sell on rise” approach as long as the index remains below the 45,000 mark.

    Meanwhile, the India VIX, which measures the expected volatility for the next 30 days in the Nifty50 jumped four-month high, making the trend uncomfortable for bulls. The VIX increased sharply by 10.68 percent from 11.59 to 12.82 levels, the highest closing level since May 24 this year.

    Leave a Reply

    Your email address will not be published. Required fields are marked *