The Nifty which made a high of 10,178.95 earlier in the week failed to keep the momentum going and slipped below its crucial support level of 10,000 which was apparently stop loss of most traders for all long positions, suggest technical experts.
Indian market broke below key support levels in four trading sessions weighed down by geopolitical concerns and currency woes. The rupee slipped to a six-month low earlier in the day but it later recovered.
The Indian rupee has recovered a bit after hitting the lowest level since April 5 in the early trade on Friday. It has tested a level of 65.11, down 30 paise from the previous close 64.81. It has opened flat at 64.80 per dollar on Friday.
“The Nifty50 index has been falling after hitting a new high earlier in the week. It has also broken below its immediate support trend line connecting the lows of 9783, 9913 and 10,058. In the last three sessions, Nifty is trading in a narrow range,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“Lot of stop losses got triggered when Nifty broke below 10K. If the Nifty holds below 10,000, 9928 will be the next crucial support for the index. If somebody is shorting the index, a strict stop loss around 10,080 can be placed,” he said.
On the options front, Nifty is currently consolidating below its highest Call base of 10200 strike. Even the supports are drifting lower which is a bearish sign.
Maximum Call open interest is seen at 10,200 with 70 lakh contracts in open interest, followed by 10,100 which holds 67 lakh contracts in open interest, and 10,300 strike has accumulated 41 lakh contracts in open interest.
Maximum Put Open Interest (OI) was seen at strike prices 10,000 which holds 50 lakh contracts in open interest, followed by 9900 strike which has 49 lakh contracts, and 9800 which has accumulated 36 lakh contracts in open interest.
With continued additions in this strike, move above these levels seem unlikely in the ongoing series. At the same time, strong Put base placed at 10000 strike remains crucial support which suggests Nifty to remain in the consolidation phase in the near term.
There are lot of fundamental factors which are troubling the bulls such as rupee weakness, geopolitical concerns, and growth pangs which are unlikely to go away soon. Traders should brace for more consolidation in the short term which could take the index towards 9685 which was its recent low hit on 11 August.
“Our pattern analysis, as well as long-term trend studies, are pointing only limited upside for the index with critical resistances placed around 10450 on the long-term charts escaping which may be very difficult for the bulls,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“In line with those projections, last 5 weeks of labored up move can be categorised into Wave B inside a corrective structure called Flat in terms of Elliot Wave parlance.
It is a 3 -3- 5 structure with the second leg being a counter-trend rally which in this case is the up move being witnessed from the lows of 9685,” he said.
Mohammad further added that in the light of above discussion, upsides in the best case, are limited towards 10,450 levels which are 2 -3 percent from current prices whereas downsides are below 9,685 which can be greater than 5 percent from the presumed top.
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