By Rohan Patil
The Nifty 50 was trading in a flag pattern formation for the last two weeks and formed lower band support at 16900 levels on the daily time frame. The prices on May 4 witnessed a massive sell-off and the index closed below 16900 levels given a breakdown of the bearish flag pattern and further that prices continued to close below its trend line resistance. This week Nifty closed below its 50-week exponential moving average and drift 4 per cent down from its previous week’s close. A 4 per cent weekly close is a massive sell-off which we don’t see often and such type of selling requires weak global clues and a strong news impact. Last week both RBI and FED raise the repo rate by 40 & 50 basis points which impacted the market negatively.
The momentum oscillator has rolled down below 40 levels and has also given a bearish crossover on the daily time frame. The MACD indicator has already drifted below its line of polarity and indicating a weak momentum in the benchmark index.
Nifty is continuing to settle below its trend line resistance and below its (21, 50 & 100) day exponential moving averages. All this bearish set-up is indicating sell on the rise strategy for the time being. A sharp over-sold bounce cannot be ruled at the start of the week. The immediate support for the Nifty is placed near 16100 levels and below that the gate is wide open towards 15900 levels. The resistance for the Nifty is capped near 16800 levels.
Bank Nifty support at 34000
Bank Nifty, since April 5, is trading within a lower high lower low formation on the daily chart and on May 6, prices witnessed an upward rising trend line on the daily interval. Same like the Nifty the banking index too drifted 4 per cent on the weekly closing basis indicating a sharp selloff week for the Indian indices. The market is in a dilemma that in an arising interest rate scenario, a more hawkish stance by the RBI going ahead could hurt growth.
After facing strong resistance at the moving average cluster which is placed at 36400 levels prices witnessed a strong reversal on the negative side and closed convincingly below its averages on the daily time frame. The majority of the indicator and oscillator as turned bearish on both daily and weekly charts which indicate a further selling pressure can be seen in the market.
The immediate support for the Bank Nifty is placed near 34000 levels and the upper band of the index is capped at 36000 levels if the banking index is closed below the said levels then the downside for the prices is open till 33500 levels.
Target: Rs 2400 | Stop Loss: Rs 2160
For the past three months, prices have formed a basing formation and in classic technical terms, the stock has formed a bullish inverted head & shoulder pattern on the daily interval.
On May 6, prices have given a decisive breakout above their neckline resistance which is also a breakout of inverted head & shoulder pattern at 2254 levels. The breakout was followed by an above-average volume and prices successfully closed above its 21- day exponential moving average on the daily time frame.
The counter is currently outperforming the Nifty on an absolute basis. The majority of indicators and oscillators are also in bullish range shift mode and reading above their line of polarity.
Target: Rs 3150 | Stop Loss: Rs 3508
MINDTREE is trading in a lower high lower low formation which clearly indicates a bearish structure for the counter. The prices have recently broken their horizontal trend line support on the weekly as well as the daily chart.
The recent back to back red candles on the weekly chart has given a breakdown below its 50- week exponential moving average on the weekly interval. We have also observed a gradual increase in the volumes in the last couple of weeks during the breakdown.
We are expecting a stock to continue its downward trend for a few more sessions as an indicator on the daily chart has still left some room on the lower side.
(Rohan Patil is a technical analyst at Bonanza Portfolio. The views expressed are the author’s own. Please consult your financial advisor before investing.)