Tech View: Don’t read too much into the moving averages; Nifty showing strength

Tech View: Don't read too much into the moving averages; Nifty showing strength

NEW DELHI: Nifty50 climbed over 1 per cent on Thursday and formed a bullish candle on the daily chart with a long lower wick, which reflected buying at lower levels with support at the 13-day moving average.

At close, the index stood above its 20-day and 50-day simple moving averages and nullified the Bearish Belt Hold pattern formed in the previous session. Analysts advised traders not to read much into the moving averages in a sideways market, but believe a breach of the 14,900 level could bring the bulls back into the game.

Chandan Taparia of Motilal Oswal Securities said Thursday’s bullish candle was healthy. He said the index has formed higher lows in last two sessions and managed to hold above the 50-day exponential moving average (EMA).

“The index needs to keep holding above 14,750 level to witness a bounce towards 15,000 and 15,100 levels. On the downside, support exists at 14,600 and 14,500 levels,” Taparia said.

For the day, Nifty closed at 14,864, up 173.30 points or 1.18 per cent.

Mazhar Mohammad of said Thursday’s daily candle showed a Hanging Man-like pattern with a marginal close above the 20-day SMA. The weekly chart, he said, formed a small bullish candle.

“However, as the trend seems to have turned sideways, this indecisive formation may not have the same pattern implication, as it can in a trending move. Moreover, in the sideways phase, price action often criss-crosses the moving average, reducing its reliability and, hence, a close above the 20-day average itself shall not have any significance. At this juncture, the 14,900 level looks like a significant resistance for the near term and a close above the said level can induce some strength,” he said.

Independent analyst Manish Shah said the weekly candle was particularly impressive, as it closed at the top of the range and had no shadows, making it all the more a bullish candle. The previous two weeks’ candles were the ones with bottoming tails, he said.

Check out the candlestick formations in the latest trading sessions

“Nifty50 seems to be completing a major Elliot Wave pattern and the entire sideways action is breaking down into an ABC flat. If the pattern holds true, we could be seeing a major move coming in Nifty in the days ahead. Over the next 8-10 days, Nifty50 should rally to the 15,200-15,300 zone. Support for the index is seen at 14,700 level. Expect a bullish bias on any break above 14,900 level,” Shah said.

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