Thursday, 27 April 2017

Traders Take Note: Nifty breaches key support level that held 7 times in 2017

The movement of the index for the next few days will be important for traders. The Moving Average Convergence and Divergence, popularly known as MACD, gave a 'sell' signal on the daily charts for the first time since February, 2017.

The Nifty on Wednesday breached its crucial support level of 13 day- exponential moving average (EMA) of 9,038 on Wednesday. This is critical as the level has supported the index seven times so far in 2017.

The index, which saw its biggest fall of the year, slipped below two crucial support levels of 9,100 and 9,050 respectively, and now a fall below gap area of 9,080-9,075 could change the trend for the market on the downside.

“Albeit Nifty marginally closed below 13-days EMA which offered support to the indices on multiple occasions in the past is currently trading close to its lower boundary of a channel support and inside the critical gap zone of 9060 – 8975 registered on 14th March,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“A bounce from this zone can’t be ruled out in immediate trading session whereas a failure to sustain above 8,975 on closing basis shall put the indices into the bear grip for prolonged period in near term,” he added.

The 13-day EMA being a Fibonacci number, has its own importance.  Within the calendar year, it has acted as a demand zone and was successful in pushing the index higher soon after it had a touch and go moment.

But, on Wednesday, it closed below this crucial moving average. In the past when Nifty breached this level, the index bounced back in the next couple of session.

This is a crucial moving average for traders and it remains to be seen if Nifty follows the same trend in next couple of sessions or not.

“A close below 13-days EMA would certainly have repercussions for the traders; however, this moving average is a short term demand and supply region and long-term investor need not worry much at this juncture,” Vidnyan Sawant, Senior Analyst - Technical Research at GEPL Capital told Moneycontrol.

“A break of 13-day EMA is the first marker for the short term weakness. After the gap-up opening of last week, the Nifty has seen consistent selling at higher levels around 9,100-9,200 mark,” he said.

The movement of the index for the next few days will be important for traders. The Moving Average Convergence and Divergence, popularly known as MACD, gave a 'sell' signal on the daily charts for the first time since February, 2017.

Not just the index, but over 60 stocks on the NSE and over 100 stocks on the BSE gave a sell signal based on the MACD which include names like HDFC Bank, Jubilant FoodWorks, Raymond, 8K Miles, Alembic Pharma, Escorts, TVS Motor Company, NIIT Technologies, Arvind, DB Corp etc. among others.

If the Nifty closes below 8975, Nifty index would erase all the gains made post the state election results, and if that happens then this rally should be construed as euphoric and 9,218 may as well become an intermediate top.

Profit booking may continue further that may see closing out of the Gap which was formed between 10th March 2017 and 14th March 2017, suggest experts. It created a visible gap from Friday’s high of 8,975 to Monday’s low of 9,060.

“The NIFTY has currently reached the half way mark of the said GAP. Hence one may play shorts with targets around 8950 while the stops may be maintained around the 9,130 mark,” said Sawant of GEPL Capital.

“We reiterate that this is a short term trade and any levels around 8,930 would lend a good support given that this also happens to be consolidation zone of February 2017,” he said.
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